By Michael D. Lipton Q.C. and Kevin J. Weber
Offshore online gaming ("I-Gaming") has survived, and even thrived, in a legally ambiguous environment since its emergence in the mid-1990s. A burgeoning Canadian industry catering to the needs of I-Gaming has emerged amidst the entrepreneurial diversity encouraged by this ambiguity. A number of Canadian interests benefit from the I-Gaming industry, including publicly traded software developers, advertising agencies and sports franchises. I-Gaming companies are major sponsors of a number of sporting events and leagues in Canada, including Canada’s professional basketball, hockey and Canadian Football League franchises. Canadian banks have treated I-Gaming transactions involving Canadian customers no differently than online transactions for the sale of books, curios sold at auction or adult entertainment services, thus sparing Canadian consumers the service charges that would no doubt be charged if the banks had to underwrite a costly regime of differential treatment of online transactions.
The provisions of Part VII of the Criminal Code1 prohibiting gaming and betting were drafted with terrestrial activity in mind, and have not been amended in a substantive way since 1975.2 In particular, the challenges posed by I-Gaming which serves Canadian customers, while originating from foreign jurisdictions where it is lawful to offer such services, have resulted in a complete lack of prosecutions associated with the activity.
The vagaries of extraterritorial application of Canadian criminal law, the questionable applicability of extradition treaties in gaming offences and the difficulty of gathering evidence in matters involving I-Gaming, have combined to create the current situation. To date, the only prosecutions relating to I-Gaming have come in the "onshore" context, where I-Gaming has been conducted or assisted from a location within Canada.
The commercial decisions relating to I-Gaming that have been made by software developers, advertising agencies, professional sports leagues and financial institutions came about in large part because there was no indication that law enforcement or government had any desire to clarify the situation. While many in the I-Gaming industry have for years made it clear that their preferred option would be for Canada to act as a responsible regulator of I-Gaming activity, much as the United Kingdom has done, Canada’s laissez faire approach was still a welcome contrast to the prohibitionist regime that developed in the U.S. during the same period of time.
It has become increasingly apparent within the last year that the time for ambiguity is drawing to a close. Dark clouds have appeared on the horizon and as forces opposed to an open market in I-Gaming services are attempting to move Canada towards a U.S.-style approach. The international I-Gaming industry, along with Canadians whose interests will be most affected by an attempt to establish I-Gaming prohibitions will have to speak up now and be prepared to offer constructive solutions in the form of regulation. Further, they will have to find compromise solutions with Canadian gaming interests who had enjoyed a monopoly on gaming in Canada before the advent of online gaming. Only by demonstrating how an open market in I-Gaming services benefits the Canadian public interest can Canada be turned away from adopting an approach akin to that of the U.S.
I-Gaming Prohibitions Being Introduced by Stealth? – Bill C-13
On June 22, 2006, Bill C-23, later renamed Bill C-13 (hereinafter the "Bill"), was introduced in the Parliament of Canada. Its title, "Act to amend the Criminal Code (criminal procedure, language of the accused, sentencing and other amendments)," gave casual observers no reason to suspect that it proposed the first major amendment to an offence created by Part VII of the Code in over 30 years.
There was a conscious effort on the part of elected officials to portray the provisions of the Bill as entirely non-controversial, describing it as involving only "technical amendments," "housekeeping," "a non-contentious cleanup bill," "fine-tuning" and matters that do "not lend [themselves] to partisanship." They drew the picture of a Bill that was "not about fundamental law reform."
Clauses 5 and 6 contained the provisions of the Bill relevant to Part VII of the Code. The Legislative Summary of the Bill prepared by the Law and Government Division of the Library of Parliament stated that clause 5 would amend ss. 202(1)(i) of the Code to be "technologically neutral."
Currently, ss. 202(1)(i) of the Code states that everyone commits an offence who:
"wilfully and knowingly sends, transmits, delivers or receives any message by radio, telegraph, telephone, mail or express that conveys any information relating to bookmaking, pool-selling, betting or wagering, or that is intended to assist in book-making, pool-selling, betting or wagering…"
Should clause 5 of the Bill come into force, ss. 202(1)(i) of the Code will read as follows:
"wilfully and knowingly sends, transmits, delivers or receives any message that conveys any information relating to bookmaking, pool-selling, betting or wagering, or that is intended to assist in book-making, pool-selling, betting or wagering…"
It was only in response to direct questions from Members of Parliament ("MPs") and Senators that senior officials of the Ministry of Justice admitted this was directed at ensuring that ss. 202(1)(i) of the Code applied to I-Gaming. Even then, they were at pains to make soothing statements purporting to limit the effect of clause 5.
Clause 5 of the Bill was discussed briefly before the House of Commons Justice Committee on May 2, 2007. Anouk Desaulniers, senior counsel for the Criminal Law Policy Section of the Department of Justice, and the Honouable Rob Nicholson, the Minister of Justice, responded to a question from Carole Freeman, the MP for Châteauguay-Saint- Constant, Quebec, an area that includes the Mohawk Territory of Kahnawá:ke, which hosts I-Gaming websites ("Kahnawá:ke"). Madame Freeman asked whether the Bill "addresses the issue of virtual casinos." Ms. Desaulniers replied that the Bill proposes only "technical and minor corrections," while acknowledging that the proposed amendment to ss. 202(1)(i) "would apply to situations involving Internet betting." She went on to state that "[t]he other controversy you raised is a significant one, and we are working on it at the department. However, it has not been included in this bill, which is more technical in nature, and non-controversial." It was not clear whether Ms. Desaulniers meant the specific situation in Kahnawá:ke, or more general issues involving "virtual casinos," when she spoke of that "other controversy"; Madame Freeman’s question referred to both.
Speaking later on that day before that same committee, the Minister of Justice replied specifically to Madame Freeman’s question by stating:
"…it’s not meant to introduce either controversial or large substantial changes to the Criminal Code, because that would be more appropriate, in my opinion, for a stand-alone bill. This bill strictly deals with technical amendments."
The Minister’s statement is revealing in two important respects. First, stating that clause 5 of the Bill is "not meant to introduce either controversial or large substantial changes to the Criminal Code" is only meaningful where there is broad agreement as to the present effect of the Code, and specifically ss. 202(1)(i) thereof, on I-Gaming. As will be seen, when clause 5 was discussed before the Senate committee reviewing the Bill, it became apparent that there was a considerable range of interpretations on that issue. Second, the Minister had clearly already considered more wide-ranging changes to prohibit I-Gaming, having determined that it would be appropriate to make such changes by way of "a stand-alone bill."
Proceedings Before the Senate Committee – November 21 and 27, 2007
The Bill as it then read was passed by the House of Commons on October 29, 2007, and sent to the Senate for consideration. Clause 5 of the Bill was next discussed in detail during Second Reading debate in the Senate on November 21, 2007. At that time, Senator George Baker of Newfoundland expounded upon what he considered to be the full impact of clause 5 of the Bill, suggesting that clause 5 could potentially impose criminal liability upon Internet service providers, including such major Canadian media companies as Rogers Communications Inc. and Bell Canada Enterprises ("ISPs").
This foreshadowed the considerable attention clause 5 would receive before the Standing Senate Committee on Legal and Constitutional Affairs (the "Senate Committee") when it examined the Bill on November 28 and 29, 2007.
On November 28, 2007, Senator Raynall Andreychuk asked the Minister of Justice: "Is there any intention of…using this section in any way on the issue of offshore betting?" The Minister of Justice stated that clause 5 would make it so that ss. 202(1)(i) of the Code would "apply equally to onshore and offshore betting."
The Minister of Justice also took the position that ISPs "who unknowingly transmit messages containing this information would not be caught under this bill" because section 202(1) (i) would still require that the accused wilfully and knowingly sent, transmitted, delivered, etc. betting information, and clause 5 "would not create an onus on Internet service providers to monitor the information transferred."
Senator Andreychuk sought clarification on this point later that same day from Mr. Hal Pruden, a senior official of the Department of Justice with noted expertise in the gaming and betting provisions of the Code. He further asked Mr. Pruden whether clause 5 of the Bill would enhance the extraterritorial effect of ss. 202(1)(i):
"You talked about offshore betting and said that it falls under the bill. I want to be clear that no new offence is being created in terms of offshore. The bill is saying that if bookmaking takes place elsewhere but a part of the offence, i.e., the transmission, took place in Canada, then should that person ever come to Canada, we could charge them. If we had existing ways to go offshore in a criminal matter, we could gather evidence, but this bill is not creating a new offence that goes extraterritorially. Am I correct?"
To which Mr. Pruden replied: "You are correct in saying that there is not a new offence. It is the same offence that currently exists in section 202(1)(i); there is no change, other than to say that the technology used will go beyond the archaic terms that we find in the existing provisions. There is no change to the offence."
"As well, you are correct in saying that if someone today, under those archaic technologies, were committing the offence in Canada while still offshore, should they some day be found in Canada, the police and prosecution might be able to proceed against them, even based on the existing provision."
Senator Baker asked Ms. Desaulniers: "[t]he intent of this change is to focus on the Internet, is it not?" To which she replied:
"The objective of the amendment is to modernize the section, to bring it up to date with current communication methods. The intention of the government is not to target Internet service providers, but rather to continue to represent in an adequate and up to date way the communication methods that can be used to convey information for the purpose of betting. I should point out that the provision does not refer to ‘gambling’ but rather to betting and bookmaking." 3
Senator Baker indicated that he saw the potential for wilful blindness or recklessness being sufficient to satisfy the mental element of the offence set out in ss. 202(1)(i), namely "willfully and knowingly," with resulting liability to ISPs. He further suggested that private individuals using the Internet as bettors and gamers could be prosecuted under ss. 202(1)(i) as amended by clause 5 of the Bill.
In response to Senator Baker’s questions in this vein, the Minister of Justice turned once again to Mr. Pruden, who cited the "private bet" exemption found at section 204(1)(b) of the Code as preventing ss. 202(1)(i) from being used against people who bet privately over the Internet. Mr. Pruden also reiterated that in his opinion, the use of the words "wilfully and knowingly" in ss. 202(1)(i) protects ISPs from being convicted under this provision. To Senator Baker’s follow-up question of who the amended ss. 202(1) (i) would capture, Mr. Pruden replied "bookies in Canada."
PartyGaming PLC Appears Before the Senate Committee – November 29 and December 6, 2007
On November 29, 2007 and December 6, 2007, the Senate Committee heard the submissions of representatives of PartyGaming PLC, including its CEO, Mitchell Garber, and two Canadian members of its International Advisory Committee, Brahm Gelfand and Norman Inkster ("PartyGaming"). PartyGaming sought clarification of the Parliamentary intent animating clause 5 of the Bill. Specifically, PartyGaming asked whether it was intended that ss. 202(1)(i) of the Code, as amended by clause 5 of the Bill, would apply to licensed, regulated offshore online gaming companies with Canadian customers?
PartyGaming took the position that ss. 202(1)(i) had historically been interpreted to apply only to I-Gaming "conducted inside Canada," and that an offshore entity sending emails to customers inside Canada would not be captured by ss. 202(1)(i) should it be amended by clause 5 of the Bill.
Mr. Pruden, however, took a different view. He stated that, under the current law, unamended by the Bill, when a bookmaker situated in Florida "uses the telephone or Internet to call people in Ontario, and engages in bookmaking, the offence takes place in whole or in part in Canada…it is in part in Canada because one person is in Canada on the phone or Internet and the other is in Florida." He further cited the Supreme Court of Canada decision in the case of Libman v. The Queen as authority for the proposition that where a criminal offence takes place in whole or in part in Canada, a Canadian court may be the appropriate forum for prosecution of the offence.
The upshot is that in Mr. Pruden’s opinion, an offshore bookmaker that contacts its Canadian customers by telephone "may be" subject to prosecution in a Canadian court, pursuant to ss. 202(1) (i) of the Code as presently drafted. Mr. Garber, himself a Canadian lawyer with expertise in the law relating to gaming and betting, took a different view of the current state of the law.
In that light, we see that the meaning of the statement of the Minister of Justice, that clause 5 of the Bill is "not meant to introduce either controversial or large substantial changes to the Criminal Code," would mean different things to Mr. Pruden than it would to PartyGaming.
As there have been no prosecutions in Canada relating to truly "offshore" I-Gaming, the question of how the principles set forth by the Supreme Court of Canada in Libman v. The Queen would apply to an offence in Part VII of the Code, cannot be answered with certainty. This explains why Mr. Pruden did not definitively state that the activities he described would be unlawful under ss. 202(1)(i) of the Code.
The intervention of PartyGaming bore some fruit. The Senate Committee tabled its report on the Bill (the "Report") on December 11, 2007, and appended its "Observations" to the Report, the final paragraph of which addressed clause 5 of the Bill:
"One final observation concerns the fear expressed by a witness of the potential extra-territorial application of clause 5 of the bill, which deals with the transmission and reception of information relating to book-making, betting and wagering, among other things. For the sake of clarity, the Committee wishes to note that it is satisfied that clause 5 of the bill will not have extra-territorial application."
On December 12, 2007, in moving adoption of the Report, Senator Joan Fraser explained this passage as follows:
"Finally, we tried to allay concerns that were raised by one group of witnesses regarding the possible extraterritorial application of clause 5 of this bill, which concerns the gaming industry in particular. We are satisfied, upon assurance by, among others, Senator Oliver and the minister, that this concern is not the effect of this bill. Therefore, we made that view plain in our observations."
Again, there is an issue of interpretation involved here. Reviewing the debates, it is clear that whereas the lawyers speaking for PartyGaming, including Mr. Garber, used the term "extraterritorial," they meant whether clause 5 would amend ss. 202(1)(i) of the Code to have any effect on matters occurring outside of Canada. Mr. Pruden, on the other hand, considered the word "extraterritorial" to mean whether it would criminalize activities occurring entirely outside of Canada, with no Canadian links whatsoever. Should the Bill be enacted into law, the effect of the Senate’s "Observations" upon the interpretation of ss. 202(1)(i) may depend on which definition of "extraterritorial" is accepted by a court.
Press coverage of the Senate debate over clause 5 of the Bill demonstrated the widespread confusion over the legal status of I-Gaming in Canada. Some coverage appeared to represent that I-Gaming was legal in Canada, while other articles indicated a need for clarification. Mr. Pruden’s comments about extraterritoriality, and the effect of the Libman decision upon the treatment of I-Gaming under the Code, were generally ignored by the press.
Status of the Bill
The Senate Committee amended certain clauses of the Bill which dealt with matters unrelated to gaming or betting, and the full Senate passed the Bill on Third Reading in this amended form on January 29, 2008. The government in the House of Commons has signaled that it will not allow the Bill to pass with these Senate amendments, and on February 6, 2008, a motion was put forward to indicate that the House of Commons disagrees to these amendments (the "Motion"). As of the date of writing, debate on the Motion in the House of Commons has yet to be completed.
Before the Bill can be enacted into law, the following will have to occur: (i) the Motion must pass; (ii) the Senate must withdraw the contentious amendments; (iii) the Senate must pass the Bill once again on Third Reading; and (iv) the Bill as amended and re-amended must be acceptable to the House of Commons, such that it will be allowed to pass and be given Royal Assent. With the government in a minority situation in the House, it is presently uncertain whether it will be able to pass the Bill on Third Reading.
Interests Motivating Clause 5 of the Bill
Before concluding Part I of this Update on I-Gaming in Canada, we must address the question of what interests are motivating the expansion of I-Gaming prohibitions in Canada, as embodied by clause 5 of the Bill. The Bill contains a second clause dealing with gaming and betting, clause 6. An analysis of clause 6 reveals the identity of the domestic interests that are influencing the government to explicitly direct the offences in the Code to I-Gaming.
Clause 6 seeks to amend ss. 204(2) of the Code, a provision which exempts lawful betting on horse-races from the offences in the Code. Section 204(2) expressly states that this exemption includes betting by telephone calls to approved race-courses or betting theatres, with such betting being regulated by the federal Department of Agriculture. In 2003, the Minister of Agriculture amended the Pari-Mutuel Betting Supervision Regulations, S.O.R. 91-365, section 2 to enact a new definition of "telephone" that purports to include online horse race betting.
The 2003 amendment to the regulations is of dubious validity, however. It conflicts with the actual wording of the Code, which states that the exemption only applies to "telephone calls to the race-course of an association." A regulation cannot go beyond the bounds of what is allowed by the statute empowering the regulations, and the term "telephone calls" used in the Code cannot be reconciled with the concept of online communication permitted by the regulation.
Clause 6 of the Bill proposed to amend ss. 204(2) to remove the words "telephone calls," replacing them with the words "any means of telecommunication." This would bring the Code into accord with the practice already being followed by the domestic Canadian horseracing industry in reliance on these dubious regulations.
Logical deduct ion would lead an observer to the conclusion that the interests that seek to bring the forces of prohibition to bear against I-Gaming are one and the same as the interests who would benefit from formalizing an exemption in favour of allowing domestic horse-racing interests to conduct online betting.
Those interests would announce their identities and intentions more clearly in the days following the Senate’s passage of the Bill on Third Reading, raising the spectre of a Canadian version of the U.S. Unlawful Internet Gambling Enforcement Act of 2006 ("UIGEA") being proposed. In the next edition, we will explore the potential for such a "Canadian UIGEA", and look at the new challenges being faced by the gaming regulatory authorities on the Mohawk Territory of Kahnawá:ke outside of Montreal.
Michael Lipton is senior partner and chair of the gaming law section of Elkind & Lipton LLP. He is immediate past president of the IMGL with an international practice in gaming law.
Kevin Weber is partner with Elkind & Lipton LLP & a member of the gaming law section.
1.R.S.C. 1985, c. C-46, as amended.
2 Criminal Law Amendment Act, 1975, S.C. 1974-75-76, c. 93, s. 11,
amending what is now section 203 ("Placing bets on behalf of others")
3 "Senate saves the day for online gambling," Law Times, Dec. 10 2007;
"Canada narrowly avoids approving online poker ban," PokerPages.com,
Dec. 14 , 2007; "Online Gambling still legal in Canada," VIPLounge
Online Casino News, http://www.casinosviplounge.com/canada/
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