R15m fine slapped on Lotto operator

Professor Bongani Khumalo, Charimain and CEO of National Lottery Operator Gidani talks to the press. Picture: Jennifer Bruce

Professor Bongani Khumalo, Charimain and CEO of National Lottery Operator Gidani talks to the press. Picture: Jennifer Bruce

Published Jan 24, 2011

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National lottery operator Gidani has been found guilty of two serious contraventions of its licence conditions and has been punished with a R15 million fine.

A cloak of secrecy has been thrown over what Gidani did in the past year to warrant the penalties but Weekend Argus understands both contraventions relate to security issues and go to questions about the probity, financial integrity or credibility of the operation.

The contraventions could have resulted in Gidani’s licence being withdrawn, though it was decided not to go this route.

This revelation comes amid a welter of complaints from NGOs and charities that – although the lottery has a staggering R6 billion in its coffers – accredited charities routinely wait years for payouts. By contrast, a payout of R40m to the National Youth Development Agency was approved overnight for its chaotic international youth conference last month.

The 2009/2010 annual report of the National Lottery Board mentions the contraventions under the heading “contingent assets”. It says that in the first instance, “the board imposed a penalty of R5m suspended for three years” as long as the offence was not repeated.

Second time around, a fine of R15m was handed down directly.

Responding to questions from the DA’s Jacques Smalle, the Department of Trade and Industry confirmed on Friday: “The National Lotteries Board is investigating the possible violation of a licence condition by the operator, which if confirmed, could attract a penalty of about R15m.”

The board’s Sershan Naidoo said: “The matter has yet to be finalised and therefore cannot be discussed at this moment.”

The Department of Trade and Industry, which is responsible for allocating the licence, stonewalled Weekend Argus, with spokesman Sidwell Medupe saying: “The minister will not be able to comment on this matter as it is… still under investigation.”

The “sub judice” claim is not, however, borne out in the board’s report, which states that the adverse finding has definitively been made, and the fine imposed.

Naidoo said that should “any fines become payable” this money would go into the National Lottery Distribution Trust Fund.

According to the Lotteries Act, an operator’s licence may summarily be revoked by the minister or the board “if a condition contained in the licence has been materially contravened”.

Naidoo said “the board has used its discretion and decided not to revoke the licence”.

Gidani spokeswoman Thembi Tulwana was reluctant to comment.

“Kindly be advised that National Lottery operator, Gidani cannot comment on the contents of the annual report of the National Lotteries Board,” she said.

When told the matter related directly to Gidani, she said: “I have been informed by Mr Sershan Naidoo of the National Lotteries Board that they have provided you with a response regarding your inquiry.

“We therefore do not have any additional input in this regard.”

Ironically, when Gidani won the bid to operate the lottery from former operator Uthingo, security was one of the areas where Gidani was said to have outshone Uthingo.

At the time, insiders said one of the reasons Uthingo lost the licence was that it had contravened the terms of the licence agreement twice in the seven years it held the contract.

Last month, Gidani’s Tulwana boasted that those trying to cheat the lottery would not be able to outwit the company’s elaborate security system.

Smalle said the DA would “demand an explanation and any wrongdoing should be investigated and people must be held accountable”.

Gidani’s licence has been set aside before, just months after it was awarded in April 2007. Former operator Uthingo challenged the awarding of the licence and Pretoria High Court Judge Willie Seriti found that the process followed in assigning the licence to Gidani and naming Uthingo as their second preferred bidder had been “flawed”.

The flaw was that the National Lotteries Board had not done its homework on the shareholders of Uthingo and Gidani.

It was found that former education minister Naledi Pandor, a political office-bearer, had shares in a company which had a stake in Uthingo.

ANC members Chris Nissen and Max Sisulu – who held shares in companies with stakes in Gidani – were also flagged, as possibly being “political office-bearers”.

After months of consideration, the licence was re-awarded to Gidani.

Questions were also raised about Gidani’s international operating partner Intralot. The Greek firm has operated lotteries in several countries including Russia, Turkey, the United States and Nigeria, but the company’s controversial billionaire chairman, Socrates Kokkalis, has made headlines for all the wrong reasons.

In Illinois, the contract to run the state lottery has just been signed by winning bidder Northstar, but not before Intralot launched a court appeal.

The state government indicated that Intralot would never have won the bid anyway, because there were concerns about probity.

A report compiled by investigative firm Kroll pointed out that Kokkalis had been indicted in several countries (although cleared each time) on charges such as fraud and money-laundering.

Intralot South Africa, a subsidiary of the international company, holds an 18 percent share in Gidani. - Sunday Argus

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