Earlier this year one of South Africa’s top information and communications technology (ICT) lawyers said that penny-auction sites could run themselves afoul of consumer protection regulations and South Africa’s gambling laws.
Smokoo, Bidchaser, Kooldeals and ViaZiz are all examples of such online penny-auction operations in South Africa.
The South African Department of Trade and Industry (DTI) has confirmed that the regulations, in their current draft form, would prevent penny-auctions from being considered as auctions at all.
“Penny auction sites make their money not on the price a ‘winner’ pays for an item advertised, they make the vast majority of their cash from the fact that every bid placed costs the individual placing it a far larger sum of money than just the single penny added to the final price of the item,” the DTI explained.
According to the DTI, a regulation that states that no non-refundable fee may be charged to participate in an auction will mean that penny-auctions run in contravention of the proposed regulations.
“Having considered the way these auctions are conducted it is now clear that this is similar to gambling and can be regulated under gambling regulations,” the DTI told MyBroadband.
This may mean more bad news for sites like Smokoo as online gambling was ruled illegal by the Northern Gauteng High Court last year.
In response to this ruling the National Gambling Board (NGB) said that it was of the view that “unlicensed interactive gambling activities significantly undermine national policy, legislation and threaten licensed gambling operations by creating an unregulated and untaxed competition.”
It added that it was “hopeful that with this landmark ruling, South Africa will be off limits to unlicensed gambling purveyors” and said that such illegal gambling activities could result in fines of up to R10 million and/or 10 years in jail.
The NGB also explained that there was a difference between interactive gambling and online betting. While it has been established that online betting is still legal in South Africa, this doesn’t seem to improve the situation for sites like Smokoo.
According to the DTI, since penny-auction would fall under gambling regulations it would also result in them being classified as interactive gambling, making them illegal.
“Any form of online/interactive gambling is illegal in South Africa up until the National Gambling Amendment Act of 2008 comes into effect,” the DTI said.
Smokoo was asked for comment but didn’t provide feedback by the time of publication.
Smokoo may become illegal gambling: DTI << Comments and views