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Issue #56, September 2014

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Compliance focus: Increasing integrity in the gambling sector

The last couple of months have seen two significant compliance decisions by the Gambling Commission: the cancellation of gaming machine society Bluegrass Holdings’ licence, and the cancellation of the licence to operate gambling machines at the Sideline Bar in Christchurch.

While Bluegrass initially lodged a judicial review of the decision, this has since been withdrawn, and its licence ended on 11 September. The Department is currently working through a cessation package with Bluegrass’ directors.

The Department considers these are important cases which underscore its commitment to ensuring the integrity of the gambling sector.

Both cases involved dishonest behaviour by key people aimed at deceiving the Department. Such behaviour should be of real concern to the gambling sector because of the damage it does to the reputation of all gambling societies and venues.

It remains the Department’s focus to remove untrustworthy individuals from the sector and use the licensing function as a gateway to ensure the integrity of those who hold gambling licences.

How can you help?

We know that improving the integrity of the gambling sector is a collective goal for venues and societies that are focused on maximising return to our communities and minimising harm. With that in mind, the Department encourages the sector to let us know about unlawful behaviour that may warrant investigation.

This information is vital to help bring about and maintain a level playing field for all gambling operators

With this in mind, we remind the sector of the Department’s Leniency and Cooperation Policy, which allows the Secretary to do the following:

  • grant immunity from Department-initiated proceedings to a person, corporate society or company, involved in activity that contravenes the Act, who comes forward with relevant information and evidence, and cooperates fully with the Department in any subsequent investigation and proceedings
  • exercise discretion to take a lower level of enforcement action, or no action at all against an individual or organisation in exchange for information and full, continuing and complete cooperation.

Choosing which society to work with: information for venue operators

We have received a number of enquiries from venue operators about how they should go about choosing a gambling society to align with.

While the Department cannot recommend particular societies to venue operators, we encourage venue operators to consider the service offered by a society and their compliance history, to ensure a level of certainty for the venue and their continued operation.

Venue operators may also wish to consider the broad community causes (e.g. authorised purpose) supported by the society through their grants, and whether or not these align with the venue operator’s philanthropic interests. However, venue operators must understand that it is against the law for them to influence a society’s grant decisions.

Compliance history information can be sought from audit reports, sanctions as listed in previous Gambits articles, Gambling Commission decisions, and research about individuals involved.

It is important that venue operators understand that the Gambling Act (2003) envisages a profit neutral relationship between venues and societies, so where a society offers to pay a venue more than another society, venue operators should ask how the increase is legally justified.

Director Gambling position update

Debbie Despard

In July we announced that Debbie Despard had accepted a secondment to the New Zealand Transport Agency (NZTA) as Acting Manager Rail Safety. Although this was originally intended to be a temporary secondment, Debbie has been offered the position on a permanent basis, and has consequently resigned from her role as Director Gambling Compliance.

Debbie has been the face of gambling compliance in the Department and the wider gambling sector for a considerable length of time, and she will be greatly missed for her leadership, skills and knowledge, and her work ethic.

The Department acknowledges the significant contribution Debbie has made to gambling compliance, and we are pleased to see her skills and expertise recognised by her appointment at the NZTA.  We wish her all the best for the challenges of managing rail safety for New Zealand.

Raj Krishnan has been Acting Director Gambling Compliance since July, and will continue acting in the role for the immediate future. We will keep you updated with the recruitment process and advise when a permanent arrangement has been confirmed.

Cooperation acknowledged

Striving to become a more responsive regulator has had impacts on the way we do things in the Department, and increasingly our work streams and projects rely on information from the sector.

This has been particularly so in recent months, with Sector Initiatives seeking information and feedback on training and governance; and Regulatory Investigations requesting a large amount of accounting information in relation to an ongoing investigation.

We acknowledge that societies have limited resources, and that at times these requests can result in added strain. As such, we would like to express our appreciation for the efforts made by societies to accommodate these requests.

We consider this to be an example of how our working relationships within the sector have developed, and an indication that we are moving in a positive direction to achieve our regulatory goals.

Regional forums November: save the date

The next round of Class 4 regional gambling forums will be held in November on the following dates:

  • Auckland Tuesday 11 November
  • Wellington Thursday 13 November
  • Dunedin Friday 14 November

Invitations and a draft agenda will be emailed to societies shortly, including venue and time information. If you have items to suggest for the agenda please email Sector.Initiatives@dia.govt.nz

Reminder: annual net proceeds rate of return requirements

An increase of the minimum rate of return to community to 40 per cent came into effect this month, following the promulgation of the Gambling (Class 4 Net Proceeds) Amendment Regulations 2014. For clarity, this article describes the approach to the calculation of net proceeds.

Regulation 10 of the Gambling (Class 4 Net Proceeds) Regulations 2004 (‘NPR’) stipulates that a society that mainly distributes net proceeds to authorised purposes is required to distribute a minimum of 40 per cent of its GST exclusive gross proceeds to authorised purposes, in each financial year. (Refer to our recent Gambits:now for details of requirements).

Two Gambling Commission decisions, the Kiwi Community Trust decision GC19/09 and the Constellation Communities Trust decision GC35/12 both confirmed that the regulation 10 requirement can only be satisfied from net proceeds generated in the same financial year. A society cannot use net proceeds retained from a prior year to satisfy the regulation 10 requirement in a future year.

Although societies that mainly apply net proceeds to authorised purposes have their rate of return requirements set by licence condition rather than under regulation 10, the Department considers that the same requirements apply – i.e. a society’s licence condition requirement can only be satisfied from net proceeds generated in the same financial year, not from a prior year.


The table below provides some hypothetical examples of net proceeds and distributions for three Class 4 societies; Society A, Society B and Society C:

Society A has breached regulation 10 of the NPR as the society has not generated or distributed net proceeds of at least 40% of the society’s gross proceeds (being 39%);

Society B has breached regulation 10 of the NPR as although the society has distributed net proceeds of at least 40% of gross proceeds (being 42%), the society has not generated net proceeds of at least 40% of gross proceeds (being 39%). Society B has only been able to distribute more than 40% of gross proceeds by using funds retained from a prior year; 

Society C is compliant with regulation 10 of the NPR as the society has both generated and distributed net proceeds of at least 40% of gross proceeds (being 42%).

If you wish to discuss this, contact your liaison in the first instance.

Table showing examples of net proceeds and distributions for three Class 4 societies

View a large version of this table.

Banknote upgrade may affect gambling machines

From the fourth quarter of 2015 the Reserve Bank will begin rolling out new banknotes. The key aim of the upgrade is to improve security features.

The impact of the upgrade may mean that note reading equipment (e.g. in gaming machines and banknote dispensing machines) needs to be updated. Societies may wish to contact manufacturers of any relevant equipment to discuss this, particularly with regard to potential cost implications. The Reserve Bank website has a section with more details on the upgrade including Q&As.

As the implications of this change become clearer, we will provide further updates, but societies are encouraged to bring issues to our attention early, should they arise.

Did you miss something?

Catch up on the Gambits:now articles we’ve released since our last bi-monthly edition of Gambits, in case you missed them:

Gambits:now articles are updates sent out in between the regular bi-monthly editions to ensure we keep you informed of news and what you need to know “as it happens".

Liaison contacts

Need to get in touch with your liaison? This list is now available on our website.