Title: ENVIRONMENT, COMMUNICATION, INFORMATION TECHNOLOGY AND THE ARTS: Interactive Gambling (Moratorium) Bill 2000: Discussion

Date: 25 August 2000

Committee: ENVIRONMENT, COMMUNICATION, INFORMATION TECHNOLOGY AND THE ARTS

Reference: Interactive Gambling (Moratorium) Bill 2000

Place: Canberra

Questioner: CHAIR; Lundy, Sen Kate; Bishop, Sen Mark Responder: Mr Bridge; Mr Farrell; Mr Mortimore; Mr Cullen; Mr Eakins

Page: 1

Proof: YES

Database: Committees Considering Bills

Source: Senate

CHAIR —I welcome the representatives of the Australian Casino Association, The Federal Group, Tattersall's and Ebet Ltd to the table. The committee has before it your submissions, the Australian Casino Association's submission No. 13, The Federal Group's submission No. 12, Tattersall's submission No. 21 and Ebet submission No. 23. Do any of you wish to make any alterations or additions to your submissions? No? Thank you. We will now ask you to make opening statements. So who would like to go first?

Mr Bridge —We would like to put our submission in context before answering any questions that the chair and the committee members may have. We represent the Australian land based casinos, in particular the casinos that have a presence on the Internet. As early as 1996, the state and territory gaming ministers began developing a consistent framework for regulating online gaming. This framework developed into a draft regulatory model and is now reflected in legislation and regulations governing interactive gaming and gambling in Australia. Australia provides consumers with the highest level of protection in the world. State and territory governments have licensed some 22 online gambling operators, although not all are operating as of yet.

I will now address the Interactive Gambling (Moratorium) Bill 2000. The Australian Casino Association does not support a moratorium or ban on interactive gambling. The interactive gambling moratorium legislation introduced into the Senate on 17 August 2000 would have devastating implications for our industry. If passed, it would severely impact on our members who have invested millions of dollars developing their businesses since the draft code was agreed to by state and territory leaders in 1997 but who were not operating cash play as of 19 May 2000.

I will address consumer benefits and protection. The proposed moratorium will not protect Australian players from accessing unlicensed, unregulated offshore sites that offer very little consumer protections, such as exclusion mechanisms or links to gambling counsellors, which are currently provided by Australian casino sites. The government says its only viable option is to effect an immediate halt to further expansion of gambling in Australia. However, our members' primary focus is the international market. Australia represents less than four per cent of the worldwide Internet market. The vast majority of consumers, who gamble responsibly and wish to gamble on trusted Australian sites, will be restricted and suffer a loss of benefits. The ACA advocates coordinating strict licensing regulation between Australian online gaming sites. That is the only practical way to protect Australian players and minimise the risk of problem gambling. The ACA Online Gambling Task Force has developed a code of practice which members adhere to, and this provides the highest level of consumer protection available. Australian casinos operate under regulations that are among the most stringent in the world and are at the leading edge of global gaming practices in terms of social and industry best practice. This also applies to our online businesses, where Australia has an enormous opportunity to present to the world the highest quality product with the tightest regulations.

Regarding compensation, this retrospective legislation is unfair, and a number of our members could take legal action. Compensation will be sought for the millions of dollars that members have spent developing a business with a licence granted by a state or territory government. In terms of the impact on e-commerce, a moratorium on interactive gambling will put in jeopardy thousands of jobs in the IT industry. Government action to restrict e-commerce in Australia will send a signal to the e-commerce industry that investing in Australian e-commerce is a high risk activity, and that people are best to make their investments elsewhere. Those supply industries will lose business and it will have a devastating impact on the small IT industry.

Australian interactive gaming operators are well placed to capture a healthy share of a growing international market. Industry estimates that more than 90 per cent of the revenue earned by Australian operators will come from overseas. A moratorium on new licences and services will restrict growth of export income and tax revenue. Investment is put at risk under the moratorium. Investment to date in online gambling amounts to about $70 million. Additional expected investment in the next five years is estimated to be $350 million, so you can expect the total investment in 2004-05 to exceed $400 million. In terms of income, to June 2000 revenue from online gaming was around $13 million. As new operators commence, services are established and operators expand, it is expected that revenue will be about $1.3 billion over the next five years. A moratorium would restrict this growth.

If we look at employment: investment and revenue would deliver skilled employment opportunities which would be put in jeopardy under a moratorium. Online gaming operators currently employ several hundred people in an unrestricted environment. It is estimated there would be significant generation of jobs in industries which already employ thousands of people working on online gaming activities.

CHAIR —Thank you.

Mr Farrell —Just as background, the Federal Group were Australia's pioneers of land-based gaming with the opening of the Wrest Point Hotel Casino in 1973. The company currently operates two land-based casinos—Wrest Point in Hobart and the Country Club in Launceston. We also have a wide area gaming network throughout Tasmania involving both the operation of Keno and gaming machines. Scenario 1 concerns the impact of the Federal Group if the bill was passed to law in its current form. As it currently stands, Southern Cross casinos, the company's Internet gaming sites, will fail the tests set out in the bill in relation to the retrospective and arbitrary cut-off date of 19 May 2000.

CHAIR —Mr Farrell, we do not want you to read your whole submission. We have read the submission. We just want you to make an introductory statement.

Mr Farrell —The position of the Federal Group with respect to the bill is that the proposal of a ban on Internet gaming would have a dramatic impact on our current business and the gaming industry in Australia. As an alternative proposal, we believe that the bill should not be retrospective back to 19 May, that if a moratorium is put in place it should be from when the Royal Assent is given and that it should only be in relation to the issue of new licences and not into the expansion of existing services with respect to Internet gaming. This is consistent with the Productivity Commissioner's report, the network study and the April 2000 report of the Home Secretary by the Gaming Board of Great Britain.

CHAIR —Thank you.

Mr Mortimore —I am general manager of Tatts.com, which is a division of Tattersall's. Tattersall's, my organisation, was introduced by Professor McMillen rather earlier, but to fill in some of the gaps, we are the state lottery licensee in Victoria, Tasmania, the Australian Capital Territory and the Northern Territory. We also hold licences for gaming in Victoria and Queensland. We hold lottery licences in Fiji and a number of other Pacific islands and we are a joint operator of the South African National Lottery. More importantly, we have served governments in Australia for over 100 years and we have yielded billions of dollars to state treasuries in the process. We are the oldest private gaming operator in the English speaking world. My organisation is also a major community benefactor, giving millions of dollars every year to charities, social and sporting organisations, hospitals and other care organisations and medical science.

In the 14 years of my employment with Tattersall's I have consulted on lottery and gaming matters with every state and territory government in Australia, the UK and South African governments, state and provincial governments in North America, the governments of the People's Republic of China, Taiwan and Vietnam and other governments in Asia and the whole of the Pacific region. I am pleased to inform the committee that the legalised Australian gambling industry is universally admired in other countries for its performance, the regulatory structures under which it operates, its ability to work cooperatively with its regulators and legislators and, above all, its success in competing against and largely replacing former illegal operations. The Australian regulatory framework and industry are therefore considered a model for other countries.

As a brief aside on this point, let me tell you about my first experience when I went to see the old national government in the Republic of South Africa. You may remember that regime. I was told by them, `This is a government ideologically opposed to gambling. We would never embrace the idea of state sponsored and regulated lotteries or gaming. We therefore banned it entirely.' I naturally asked what the government was doing about the 2000 illegal casinos that the police and the republic told me were there and also the illegal lottery operations, for which the street sellers could be seen on every corner. I was told, `Don't worry about that. We will close it all down.' History of course shows that the regime never achieved that objective. Instead it was itself closed down and the new government has since had a real impact on removing the illegal operations by legislating for the start-up of legally regulated and licensed industries in lotteries and gaming to replace them. I believe there is a salutary lesson in that for us here today.

There are a number of problems with this proposed legislation. I would like to start with one particular to my organisation, and that is that the bill covers lotteries. 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. I draw the attention to the committee to table L12 of the Productivity Commission report for further support of my comments in this regard. 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.

I believe that the two problems I have just mentioned could obviously have been dealt with by proper consultation between the Commonwealth, the states and territories and the industry. I know for certain that nobody at Tattersalls was consulted about this legislation. Consultation could have ensured, and could still ensure, that any additional requirements that the Commonwealth has could be incorporated into the legislation that has been developed by those states and territories that have legislated in this field. I personally believe that the ACT legislation under which Tattersalls is licensed and which has been developed over a period of five years in cooperation with Queensland, Victoria, Tasmania, the Northern Territory and the industry is far better than anything available in the world today. It meets all of the requirements of the previous Senate inquiry. It is clear to me that any further player protection standards which the Commonwealth government wished to introduce could easily have been accommodated through consultation.

My colleagues have covered the other general issues that we have with this bill, so I will not reiterate them, but I would urge this committee to recommend to the Senate that the bill be voted against for the damage it will do to the Australian industry and to the very consumer groups that it aims to protect. In its place I propose that the senators asked the government to join a consultative process with the industry and the states and territories to improve current legislation where that is possible and to create a basis for uniform regulation in respect of forthcoming developments in the interactive technologies.

Before I finish I would like to read a brief letter which appeared in the press in Sydney a couple of days ago. I have spoken to this gentleman. He is a reformed gambler of 30 years standing. He has spent the last 20 years working for Gamblers Anonymous and latterly with the organisation which he helped to found, Gamblers Help Line. His name is Jim Hickson: Although Gamblers Help Line has a strong commitment to see a freeze on more gambling, after a great deal of research we feel the ban on Internet gambling is not only impractical but will be impossible to police and will only drive the problem offshore, away from any hope of support of regulation. Gamblers Help Line made a submission to NOIE on the government's study into the feasibility and consequences of banning interactive gambling. Our recommendations include: Internet sites should be licensed and the revenue raised from these licences should go to provision of support services; governments will need to continue research into and reviews of Internet gambling; consideration should be given to establishing a gamblers' ombudsman so there are some legal remedies applied to the conduct of gambling sites; funds from government revenue from Internet gambling need to go towards a concrete and ongoing public education campaign about the dangers of this form of gambling. This campaign needs to be particularly directly to young people and parents of children who may gain access to gambling sites.

I spoke to Mr Hickson yesterday; he was very anxious that his letter be read to you. There are other organisations to whom I have spoken recently that have indicated a desire to be heard by your committee. They obviously will not be heard today—they have not had time to organise themselves in order to do so. But they would be very grateful if you would receive letters from them over the next few days. Thank you.

CHAIR —Thank you. Mr Cullen.

Mr Cullen —Thank you very much, Chairman, and thank you, Senators, for the opportunity to be here today. Our company, Ebet Ltd, is an Australian based publicly listed company that trades on the Australian Stock Exchange and the New Zealand stock exchange and, in general terms, we are a gaming and wagering industry participant. We employ more than 50 people and we have operations and contractual arrangements in place here in Australia, New Zealand, the United States, Canada, Cyprus and the Caribbean.

In general terms, I would like it noted that our company does not support the moratorium bill. For reasons expressed by many people today, we believe the bill will not meet the policy objectives of the government to protect Australians that it perceives as being at risk from problem gambling. We, therefore, believe the bill is inappropriate and should not be supported. We do support the fact that state regulation is the best approach to regulating Internet gaming and wagering. We support a national model and believe that is a good alternative to the states operating in isolation. We certainly do not support a ban on interactive gaming and wagering, again, for the many reasons that have been reiterated today. A ban on interactive gaming and wagering is not feasible to enforce and it will not protect Australians that the government perceives are at risk.

We are very concerned also about the general thrust of the moratorium and the government's stated previous position towards a ban on Internet gaming and wagering insofar as we believe it is an expedient manner of addressing the broader issues associated with problem gambling that were reported by the Productivity Commission. I was alarmed earlier today to hear the representative of the church group refer to the horse having bolted with respect to land based gaming. Basically, from what I could establish, they threw their hands in the air and said, `There is nothing that can be done in the land based environment; at least here we can put some controls in place'.

I would suggest that plenty can be done in the land based environment, and one of the areas that my company is involved in—outside our online activities—is the provision of card based payment systems for slot machines. Governments all around this country are looking at these systems because of the benefits that they provide regarding problem gambling—that is, the activity becomes account based where the identity of the player is known and you can put controls in place such as limiting the amount of money that can be taken on and off a card and so on.

Certain people within church groups have suggested that these sorts of cards for slot machines should become compulsory: that it would be a good idea to insist that people establish an account to bet on a slot machine. Certain church groups have also suggested that a monthly statement of activity should be mailed to the household of these gamblers and so on. I am not here to argue the merits of those sorts of ideas, but I would point out that all of those ideas are inherently in place in Internet gambling. All of the activity, by virtue of the way in which the system operates, needs to be account based. Players can track their own expenditure. Most of the activity somehow relates back to a credit card; monthly statements are therefore sent to the home and so on and so forth. So to suggest that Internet gambling is somehow more inherently evil than land based gambling is simply incorrect.

Having said that, I think my company would like to submit that should the government feel predisposed towards putting a moratorium in place, the bill is extremely forward in a number of areas and, most importantly, it extends well beyond what its stated intentions are. We would like to suggest that should the government and should the Senate and the House of Representatives believe they should support a moratorium, that at least the moratorium must be amended in two areas. Firstly, to ensure that the moratorium only has effect from the date at which it became law is to create an investment environment in Australia where retrospective legislation can cost companies that were operating within regulations, spending millions of dollars, investing millions of dollars, to be undermined by retrospective legislation. To create that environment is simply untenable. We believe that a further amendment to the bill, and this is our biggest area of concern, is as to whether the bill extends beyond its stated intentions. A further area where it needs to be rectified if any moratorium is to come into place is that it should relate only to gambling services that are either on Australian soil or operated by Australian companies who target and/or accept customers from Australia. The bill's explanatory memorandum is very clear in its stated intent. In our submission I have paraphrased the bill and highlighted in bold italics a number of references here. The government is concerned about the amount of gambling in Australia. Australians are already amongst the heaviest gamblers in the world. It is estimated that one in 10 Australians are affected in some way—and so on and so forth. The references continue. The bill's stated intent is to protect Australians.

I understand on our reading of the bill, and this is where we believe the government has gone well beyond the intent of the bill, that it is seeking to make it an offence for a person or corporation with specified links to Australia to be involved in the provision of Internet gambling services that would be operated legally outside of Australia. This restriction appears to apply even if the service is duly licensed and regulated in another international jurisdiction, and even if it in no way targets or accepts customers residing in Australia. By way of example, if our company were to establish an Internet betting service for a European racetrack that was duly licensed by a European government and accepted only betting from European citizens, it is our reading that, should the bill pass in its current form, that would be deemed to be illegal because our company is based here, our board of directors have the ultimate say over how that business is operated and so on and so forth. I ask you and the government to consider how this in any way assists the government's endeavours with respect to protecting Australians that it perceives are at risk. It seems to me ludicrous. I put a reference in here that that sort of extension of legislative power to my mind is akin to preventing an Australian construction company from building houses in California because Californian building codes do not match the standards in Australia. It is ludicrous to suggest that we would even endeavour to do that. Australia faces certain issues with respect to gaming; other countries do not necessarily face those issues. Australian gaming and wagering technology know-how and investment is sought after globally, and the bill in its current form will unnecessarily restrict the ability of Australian companies to grow their businesses internationally. This will have a material adverse effect on literally tens of thousands of mum and dad investors that have invested in companies such as mine. We urge again that, if a moratorium must be supported, there should be an insistence that the bill is amended to ensure that it does not extent beyond the government's stated intentions.

Before I conclude I would just add support for Jan McMillen's comments earlier. We would also suggest that if a moratorium is put in place a period of nine months is really completely unnecessary as there has been the Productivity Commission report and the Senate select committee last year, and a lot of information is available in the marketplace and available to the government at the moment. A period of nine months seems ludicrous to consider such an important issue.

Senator LUNDY —I want to turn to the issue of illegal operators offering interactive gambling—that is, gaming or wagering—online. I am trying to get a bit of a snapshot of the presence of service offerings that are not registered in any jurisdiction. Do you have any knowledge about the use or proliferation of these illegal sites?

Mr Bridge —We understand there are currently around 700 to 800 Internet sites operating on the world wide web today. That is projected to grow to about 3,000 by the end of next year—which, conservatively, is an increase of about 20 a week. Most of them operate out of areas in the Caribbean with little or no regulation and they can be accessed by Australians.

Senator LUNDY —What about services that might be based on servers here in Australia that are not regulated—sites that would currently fall outside the law no matter what state they were located in?

Mr Bridge —We understand that there are a few casinos operating out of Australia without full regulation. Many overseas sites pertain to be Australian based—one example is Australiancasino.com. These casinos are trading off Australia's well-earned reputation for corruption-free gaming. The customers could be easily mistaken in thinking they were gambling within an Australian regulated site.

Senator LUNDY —In terms of your industry's position of competing against illegal operators such as that, how do you establish your defences? What tools do you use as an industry to protect yourself against illegal operators?

Mr Bridge —It is very difficult to do that. Australian online casinos can trade off the fact that they are government regulated and that there is a government arbitrator in times of dispute. That is a major point of credibility with a number of our players. Similarly, there is a level of probity among operators that the games are fair and are set at common return-to-player percentages similar to a land based environment. The trust factor is very important with online gaming: people can see that they can gamble on a site that pays the correct odds, that does pay and that will be there tomorrow and the day after rather than on perhaps Dodgy Brothers Inc., which might take your credit card across the net and then disappear two or three days later.

Senator LUNDY —I want to ask the same series of questions with respect to the online casino operators that are registered in the jurisdictions that do not have a high level of regulation or minimal regulation. You mentioned the Caribbean. In terms of that effectively unregulated environment, what recourse do consumers or gamblers have in pursuing complaints with companies operating out of those jurisdictions?

Mr Bridge —Very little. A few organisations assist in arbitration, but there is very little recourse at all. Most of the focus then goes onto chat rooms and other things to try to explain or to warn other players about the lack of credibility of those sites.

Senator LUNDY —Your best defence is to be quite net savvy and know how to find that online community that could provide some commentary on the worthiness or otherwise of different Internet gambling offerings.

Mr Bridge —That is correct. We could go a long way by having a government-endorsed portal that perhaps said what sites were regulated and came under the terms of the various state governments of Australia. People would then know that they were dealing with a trusted site.

Senator LUNDY —I presume that that would be particularly good for those Internet users that are not experienced and do not know where to find chat rooms or news groups covering gambling online.

Mr Bridge —That is correct. Some of Australia's regulated casinos have a very good reputation and are often the subject of online magazines because of their high level of regulation.

Senator LUNDY —The explanatory memorandum of the bill—if I had a copy, I could quote it—basically says that this bill will not prevent access to gambling sites not located in Australia. Under the heading `Problem gamblers', the explanatory memorandum states:

The moratorium will not restrict Australian gamblers' current ability to access offshore sites.

In terms of what you have said about illegal operators and the proliferation of sites, can you see any way in which this bill would assist in reducing the number of problem gamblers that are potentially able to use the Internet?

Mr Bridge —No. We believe the Internet has the ability to assist problem gamblers much more so than the physical world. I have been in gaming for 25 years and I have never seen a poker machine with any exclusion buttons. However, the Australian regulated sites—under the measures recommended in the Netbets report—have the facility to enable people to bar themselves or to self-exclude from the site and to seek gambling assistance if they think they are developing a problem.

Senator LUNDY —On that point, I am familiar with the Australian Casino Association's code of practice. Will the association run through the current status of that code of practice, who is working to it and, in summary, the issues that it covers?

Mr Bridge —The operating casinos that are members of the Australian Casino Association adhere to that code of practice—that is, Lasseters and the Federal Group. That code of practice reflects very much the recommendations of the previous Senate inquiry, the Netbets recommendations, and the ACA members' code of conduct mirrors those recommendations.

Senator LUNDY —You said that that code of practice reflects Netbets. Did it reflect the Netbets recommendations before Netbets was published or have you modified the code since the publication of Netbets?

Mr Bridge —We have modified it since Netbets. It remained substantially the same but in some ways it has been changed to fall very much in line with the Netbets recommendations.

Senator LUNDY —How do you enforce that code of practice and provide redress to consumers of your services who feel that they have been hard done by?

Mr Bridge —One of the things that the code of practice addresses is the ability of players to go to an arbitrator—which is, in the case of Lasseters, the Northern Territory government and, in the case of the Federal Group, the Tasmanian government—and seek clarification of any disputes. Additionally, the association has called for tenders for testing agencies to go back and monitor those sites as a player would to ensure that all the services being offered do work and that the links to gambling assistance houses are there. There are negotiations going on with two or three testing agencies that will monitor the sites and give a report to the association.

Senator LUNDY —I turn now to lotteries. In your reading of the bill, would lotteries come within the scope of the moratorium if they were offered on the Internet?

Mr Mortimore —That is correct.

Senator LUNDY —You mentioned that you were not consulted. Is anyone aware of any discussion or public statement by the government that lotteries would be captured by the scope of this bill?

Mr Mortimore —Certainly in my contact within the industry, and particularly the state lottery organisations throughout Australia, I am not aware of any contact whatsoever by the Commonwealth with any of those organisations—or with the states, for that matter.

Senator LUNDY —In terms of online offerings of lotteries, could you describe what is currently in the Australian environment in that area, if anything?

Mr Mortimore —Tattersall's has operated through various online agents for several years now. In fact, my colleague here is one of our agents for the purpose of selling lottery tickets over the Internet.

Senator LUNDY —And because you had a pre-existing service, would you be able to continue operating through the period of the moratorium?

Mr Mortimore —Yes, for the existing lotteries that we have, but we cannot introduce any further lotteries that our state government may wish us to introduce through our terrestrial systems—they will not be able to be added to our Internet capability.

Senator LUNDY —Yes, you mentioned what you cited as an unintended consequence, that it in fact extends to land based new services.

Mr Mortimore —Correct. If I may amplify that: I was not purely concerned with the introduction of new lottery games, but also systems we are working on at the present time—which Mr Cullen gave some description of—which might lead to a greater degree of interactivity between us and our players through the retail environment, which would then enable us to implement, in our view, some greater degree of detection and ability to deal with problem gambling behaviour. Clearly, I think we all understand that it is very difficult within a retail environment to detect problem gambling behaviour, but the kinds of systems that we may be able to introduce in the future may be able to assist us in that regard. It would be, in my view, a disaster if we have to halt development on those kinds of systems now because we might be seen to be in breach of the moratorium.

Senator LUNDY —I am sorry if I sound like I am just restating your statements. In terms of modifications to an online offering, are you saying that endeavours to improve perhaps the back-end management of your online site will not be able to occur because this bill says that you cannot change the service that you are actually offering?

Mr Mortimore —It is not just the back end, it is the front end. Mr Cullen gave an example—

Senator LUNDY —I am presuming that the front end cannot change, but my question goes more to the back end as well and modifications to your business systems.

Mr Mortimore —An integrated system which embraces what is done both at the front and back ends really has to be developed as a system entire. What I am saying is that, given our present interpretation of this bill, we may have to halt the kind of development that we are engaged in at the present time.

Senator LUNDY —The Productivity Commission's report showed that lotteries was the only form of gaming that has been shown to provide a clear community benefit—of $1.1 billion to $1.5 billion, I think. In terms of that particular finding of the Productivity Commission's report, have you been given any indication as to why lotteries have been roped into this bill at all?

Mr Mortimore —None whatsoever, Senator. It is not only that the Productivity Commission reports in the way that you have described; it is also that the table that I referred to in the Productivity Commission's report indicates that, certainly for Victoria—and to the best of my knowledge—there is zero percentage of lotteries as a cause of problem gambling behaviour. And I believe that it is a very low figure across the whole of the Commonwealth.

As I said, based on my industry experience, it is very difficult to see that there is any obvious evidence of lotteries being a problem gambling product. On that basis, I do not believe it should be included. We were never consulted about it and neither was anybody else in the lottery industry.

Senator LUNDY —Moving on to another point that was raised by a number of you—that is, the retrospectivity of the legislation—it is clear that that seems to have provoked some activity in some of the states with respect to the date of operation of the moratorium. I think one of you indicated in your statement that if that retrospectivity were removed, that would be a lesser evil in the scheme of things as far as your business is concerned. I am interested in your comments about the potential for any moratorium to create a barrier to entry for your competitors and what, if any, consideration you have given to the impact on your particular market of a moratorium of any duration. As the bill currently stands, it allows existing services to continue operating and no-one else to enter the market through that period. Because it looks like the moratorium is the precursor to an ongoing ban, will that perpetuate the market advantage of many of the existing players?

Mr Eakins —The issue really is a two-phase issue. The moratorium, if it does not apply retroactively, or retrospectively, in effect still creates a ban on Internet gaming, because, realistically, no-one is going to invest in new technologies in their sites, advertise their sites, et cetera, when the outcome of the moratorium may well be a full-time ban. So really, in effect, any moratorium, until the outcome is known, produces so much uncertainty into the marketplace that even the existing operators would not be able to market their products during that period of time. As another example, 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.

Mr Mortimore —I think I can answer another part of the question that you asked there, which is: what about those people who were licensed prior to the declaration of the moratorium but who have not started? We are in that category. We could, indeed, have started. Certain of our systems were operating prior the moratorium, but we could have started other systems. We could have started in the Internet casino. We chose not to because we believe that, to do so, would have been entirely inappropriate for an organisation of our standing and our reputation, given that we had not completed all of the necessary software tests to our satisfaction to deliver the services that we wanted to deliver under the regulatory framework that we wanted to deliver it under.

I mentioned the ACT act. I believe, along with Queensland, Tasmania and Victoria, there is a great deal of commonality. Despite what was said earlier, the regulatory frameworks through all of those states and territories are indeed very similar. They all require very high standards for registration, they all have controls over the amount of money that can be placed into accounts by players, and they all have requirements in respect of player history. They all have requirements for players to be able to go through to gambling counselling services online and not to be able to come back to the gambling site. Certainly in the case of the ACT, there is a requirement that players can self-exclude and that family members can have players excluded. We will have a 24-hour help line available to players, and the people involved in providing that assistance will have been trained by gambling counsellors at least in terms of recognising problems as they come through. Given that we could not put all of that in place immediately in order to beat what we anticipated to be the declaration of a ban, we decided not to do it. We decided that it would have been unreasonable. However, I am sure that it could have been done to beat the ban, and therefore we could have said that we were operating before 19 May.

Senator LUNDY —The 19 May date was expressed a long time ago by way of a public statement from the government. However, that date was not nominally concreted in place until this bill was tabled—additionally, I think Senator Newman mentioned it in a response to a question in the Senate. Did you make the decision not to operate your site obviously for the reasons that you have described but also on the basis of a public statement, or a statement of intent, by the Prime Minister? Was that enough for you to change your business plan?

Mr Mortimore —There had of course been a number of announcements about a proposal to introduce a moratorium, and those comments had preceded the meeting with the states going back, I think, to April. I guess the industry, or some members of the industry, took the view that it would be a good idea to hasten their activities and get operating at that point. Perhaps they sniffed the breeze better than we did. In our case, we felt that it was not an appropriate thing to do prior to 19 May, so we did not operate some of our services. Senator LUNDY —In terms of your preferred approach, a number of you have mentioned the suitability of some sort of federal coordination and state based regulation. Have the events of the last few months in relation to the federal government's activities either hastened or slowed down the development of effective co-regulatory regimes for interactive gambling?

Mr Cullen —I will speak to that. From my observations, I would have to say that it has probably slowed it down. The announcement of the proposed moratorium, the proposed backdating of legislation and so on has created such an uncertain, untenable environment within the country for operators and regulators that I think it has slowed down any sensible process regarding the real issue of regulation. Returning to the issue of retrospectivity and whether or not retrospectivity affects any of the operators, I think my biggest concern is the simple principle of it and the opportunity for Australia to be seen internationally as a very unsavoury investment environment—not only by people in the gaming community. These are rights under the telecommunications law that are being enacted with respect to this bill.

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. Companies like mine, like John's and like those of the other gentlemen at the table were not operating in a vacuum of legislation. They had deliberately not done that over the preceding three or four years. All of us at this table had worked with state based regulators who were charged with the responsibility in this area to create a regulated, legislated environment. Having done that, these companies then invested millions of dollars. Taking away the issue that we are talking about gaming and wagering, those companies are operating legally now. The proposal is that the federal government will use its powers under telecommunications to enact legislation that, backdated, will make that legal conduct a criminal offence. It defies logic. If you were an international investor looking at this marketplace—whether it is in gaming and wagering or anything else—I think you would have to start to question whether that creates a very healthy environment and whether you might want to look at another market altogether.

Mr Farrell —Our company, Federal hotels, has been working with respect to the development of Internet gaming sites for over four years and we have spent some $14 million. Our intention has always been to get to market as soon as possible. Our company reached marketplace after 19 May. As I said earlier, an announcement was made in April by the federal government in respect of the moratorium. Our company decided to continue to go to market—

Senator LUNDY —Out of interest, was the date 19 May mentioned in that April statement?

Mr Farrell —No, I do not believe so. Perhaps they raised the prospect of a moratorium.

Mr Eakins —I think the sequence was that in April there was the notion that the states should stop issuing Internet gaming licences.

Senator LUNDY —Was that the approach by Senator Alston to the ministerial council? <

Mr Eakins —That is right. Then in May I think the senators decided that there was not much action going on at a state level and they announced that they would legislate against the issuing of new licences on 19 May.

Senator LUNDY —That statement was made on 19 May.

Mr Eakins —That is right. It was not until 27 June that there was actual clarification of what that meant. In other words, it was then clarified to be not new licences but new services. So it changed all the way through.

Senator LUNDY —I am trying to ascertain whether the decision by the Federal Group to continue with their investment following the April announcement was made in good faith and without any indication that in fact there was a problem with pursuing that investment. On the face of it, it does not seem that there was. Please continue, Mr Farrell.

Mr Farrell —From our company's point of view, our company was acting under an act of parliament of the state of Tasmania. We invested the $14-odd million over four years. The announcement by the federal government was in the form of a press release; it was not legislation that was put in place. As there was no legislation at that point in time restricting our bringing our sites to the marketplace—which did occur after 19 May—our company continued down that path. The contention of our company is that it is totally wrong to make a legal activity in which we are currently participating illegal retrospectively.

Senator LUNDY —Thank you.

Senator MARK BISHOP —I have a few questions, and I direct the first to you, Mr Bridge, as the industry representative. This morning Canbet and one of the other organisations supported making a distinction between wagering and gambling and sought to have the bill amended to achieve that purpose. Does the industry association have a view on that subject?

Mr Bridge —No, not really. As a casino association we see that the standards we have rely only on casino-style games that are often over the Internet, for example, blackjack and roulette. We do not have a view.

Senator MARK BISHOP —Mr Mortimore, does your organisation have a view on that—excising, wagering—from the intent of the bill?

Mr Mortimore —I think it is fair to say that the industry has always been represented in different segments. It is quite natural, therefore, for those who have come from the wagering side of the industry, perhaps, to argue their case, just as I have argued my case, for lotteries. I can discriminate lotteries from other forms of gambling behaviour. At the end of the day I think the industry is certainly united in its opposition to this bill, and that is the most important thing.

Senator MARK BISHOP —All right then. I notice in the explanatory memorandum that the government consulted with a range of government departments and has received letters and public statements of support from a number of church and welfare organisations for its proposal to legislate for a moratorium. It makes no comment as to consultation with industry and consumers. Could you advise me whether all of your companies and the industry have been consulted as to the content of the bill?

Mr Bridge —In relation to the Australian Casinos Association we have been trying since January this year to get meetings with Senator Alston and Senator Newman. As late as yesterday we had our first opportunity and we had a meeting with Senator Alston yesterday.

Senator MARK BISHOP —So you have had your first and only meeting subsequent to the publication and tabling of the bill?

Mr Bridge —That is correct.

Senator MARK BISHOP —So you were not consulted at all with respect to its drafting?

Mr Bridge —You are correct.

Senator MARK BISHOP —Were any of the individual companies consulted with respect to the drafting of the bill?

Mr Mortimore —No.

Mr Bridge —No.

Senator MARK BISHOP —Are you aware of any companies or other industry organisations that have been consulted as to the drafting of the bill?

Mr Bridge —We are not aware that anyone was.

Mr Mortimore —My organisation, Tattersalls, is a member of the Australian Gaming Council, which is a new association that has just been started up. It has foundation members embracing Tattersalls, TABCORP, Crown and Tab Limited and a number of other organisations that have now associated with it. I can certainly testify that none of those organisations, at least in their expression to the Australian Gambling Council at this point in time, claim to have had any knowledge of the development of this bill nor any consultation with the Commonwealth Government over it.

Mr Cullen —Quite to the contrary. All I have heard from both the industry bodies and companies involved in the industry is that there has been absolutely no consultation on the drafting of the bill.

Senator MARK BISHOP —Thank you, gentlemen. I just want to go to this point that you raised, Mr Cullen. I presume you are referring to clause 5(c)(ii) where the interactive gambling service is a gambling service and it says:

... the central management and control of the service is in Australia—

If this bill should be given effect and the moratorium come into place, firstly, there will be no new or additional services offered in the interactive area and, secondly, it obviously is intended to impact on all of your companies in Australia that might be seeking to go into the interactive area. What are the consequences generally for such a provision?

Mr Cullen —For our company?

Senator MARK BISHOP —Your company and the other companies. It seems to be at the outset a backdoor method to ban any interactive gambling development in this country by saying that any companies that have their management or board structure located in this country are affected. Is that your understanding of its purpose?

Mr Cullen —That is our read of the bill there. My understanding of why the provision was put there was to prevent somebody who did not have a service predating May 19 going to an international jurisdiction, getting a casino licence there, for example, and operating basically in a fashion to circumvent the moratorium.

Senator MARK BISHOP —Or relocate their server offshore.

Mr Cullen —Right, and by offering services back into Australia that the government felt would have a negative impact on Australians that it perceived to be at risk. However, the way that this bill has been drafted extends well beyond that. Again, I make the point with the European racetrack, but I will use us a very real example to do with activities that our company is involved in in the United States. My company has a joint venture relationship with a racetrack operator in the United States who also offers telephone betting. It is a company similar to that operated by Mr Wilson, who appeared here earlier today.

My company and that company have engaged in the development of a closed loop interactive betting service to offer their users a discrete service for betting on US races—racing in the United States by United States residents. By very good luck rather than by good management, we took our first arms-length customers on that service on 16 May—by good luck, not by good management; a pure coincidence. Had we not done that, by virtue of the fact that our board of directors is based here and our registered office is in Australia, it could be argued that our involvement in that business would be criminal conduct. That seems to me to be completely absurd.

Other countries do not face the same issues that we face with gaming in Australia. The government here has no right or no place to try to extend its jurisdictional reach into those markets and, at the same time, to stymie the growth and development of Australian companies behaving legally in those markets. It is akin to saying that a textiles company that is based in Australia should not set up a plant in Indonesia and employ Indonesians because the minimum wage up there is $2 an hour and not $12 an hour like it is here. The government has no role to play in that sort of situation.

Senator MARK BISHOP —Mr Mortimore, in your company, is the interactive gambling area a significant growth path for revenues in the future?

Mr Mortimore —We believe it is. We believe there will be a substantial growth in interactive gambling in a range of forms over the next decade and that, from the perspective of the long-term survival and growth of our organisation, it is very important to be a part of it. We seek to do that under the normal framework of legislation and regulation that we are accustomed to in this country. I might add that we have been obviously extremely successful in what we have done as a terrestrial, or retail based, gaming organisation. We do acknowledge that, of course, we are members of the community and that there are downsides to our success. We do wish to develop a framework of platforms that, both in the retail sector and in interactive gambling, can better protect the interests of the players with whom we deal. We believe, particularly with interactive technologies, that we are going to be much better equipped to do that, but I have already indicated to you that there is a problem with this bill even in the implementation of new technology to our retail systems.

Senator MARK BISHOP —Is the interactive gambling a critical growth path for the future?

Mr Farrell —From The Federal Group's point of view, we see interactive gaming playing a very important part in the medium- to long-term future of our company—with respect to a revenue base.

Mr Eakins —The issue is that we have been operating legal casinos, as John said, since 1973, and we operate within state boundaries. What interactive gaming gives us is the opportunity to move out of state boundaries and into overseas markets, and that is consistent with the whole thrust of the strategic framework from the government in relation to its e-commerce strategy. So we actually see that as an important extension of our business into overseas markets which we obviously currently cannot go into at the moment.

Senator MARK BISHOP —And the Federal Group's markets are solely offshore at the moment, aren't they?

Mr Eakins —That is correct, yes. We do not offer any Internet gaming product into Australia, or North America.

Senator MARK BISHOP —But Tattersall's would be seeking to offer interactive Internet gambling into the Australian market though?

Mr Mortimore —We already do. If you care to treat our lotteries as being interactive gambling, which we do not but nevertheless the legislation evidently does, then we have been for some years transacting with Australians and many people overseas. And as my colleagues have just said, the interactive technologies, particularly the Internet, offer us a great opportunity to develop our business offshore. We obviously have done that in a terrestrial sense as well. We are operating in South Africa, and we are operating in a number of Pacific countries. We seek to complement that by use of other channels of distribution, which is the way we see these technologies.

CHAIR —Thank you. We will adjourn now for lunch.