Canadian Gaming Lawyer

Canadian Gaming

Lawyermagazine

Volume 1 Number 1 May 2008

Amendments Affecting Casinos Proceeds of crime (money Laundering) and terrorist Financing Act

Inside: Canadian Gaming Industry Awards The Long Arm of the Law Giving Regulators the Heads-Up

Message from the Editor

As Editor of Canadian Gaming Lawyer,

I am delighted to welcome you to our inaugural edition. The Canadian gaming industry is relatively young and did not exist 30 years ago. Today, it supports thousands of jobs throughout Canada and provides billions of dollars of revenue to our governments that is used for education, health and infrastructure. As the industry has grown, it has become apparent that our laws must develop to assist members of the sector and provide guidance to them whether in dealing with regulatory and integrity issues or day-to-day matters such as employee relations.

The Canadian Gaming Lawyer will be dedicated to this goal, or in a phrase, to advance gaming law through education.

Interestingly, this commitment is shared by the International Masters of Gaming Law (IMGL), an organization of which I am proud to be a member, and which is a strong sponsor and supporter of this magazine.

As editor, I promise that we will strive to publish timely articles from a legal perspective. Topical issues involving the industry will be covered, assisting lawyers to better understand the components of the industry and enabling them to properly advise their gaming clients. Concurrently, we will reach out to members of the industry by publishing relevant and timely articles from a business perspective to enable them to gain greater insight into the issues faced on a daily basis.

In this first edition, we will review topics relating to compliance, employee relations, Internet gaming and tracking of financial transactions - to name a few.

We will also visit with three winners of the Canadian Gaming Industry Awards sponsored by the Canadian Gaming Association and the IMGL. Our contributors include Patricia Carnevale who works with Bruce Caughill, Vice President Legal / Administration Falls Management Group, Kevin Weber, Chris Jonathan and Chad Finklestein who work closely with me in the Gaming Law section which I chair at Elkind & Lipton LLP, Danielle Bush who focuses on I-gaming law at Chitiz Pathak LLP, Larry Walters of Weston Garrou, Walters & Mooney, in Florida, Tony Coles of Jeffrey, Green & Russell in the UK and Bob Stocker of Michigan. Thank you for stalwart efforts in assisting me on this first edition.

Your views regarding our magazine are important. I am anxious to learn of them and urge you to email me with your comments. At the same time, I want to encourage all readers to contribute to future editions by writing an article and to join with me in supporting the magazine by placing an advertisement in it. Lastly, I want to thank Chuck Nervick of MediaEdge Communications Inc., our publisher, for all of his assistance.

We have high hopes and bold plans for the future. It will be an interesting journey as we go forward and I invite you to come along.

Thank you,

mdliptonqc@aol.com

May 2008  |  3

MESSAGE FROM THE PRESIDENT

Welcome to the

inaugural issue of Canadian Gaming Lawyer, the newest publication of the International Masters of Gaming Law (IMGL).

The International Masters of Gaming Law is a non-profit educational organization incorporated under the laws of Nevada. It is dedicated to raising the professionalism of the practice of gaming law on an international basis through the education and academics of gaming law.

Canadian Gaming Law yer is the latest effort of the IMGL and is designed to reach all elements of the Canadian gaming industry that is playing a key role in the expansion of the Canadian economy. Canadian Gaming Lawyer will be published twice a year, with a spring and fall issue.

It will focus on gaming law issues that are at the forefront of Canadian gaming and will address international gaming issues that affect the Canadian gaming market. In this regard, the IMGL solicits the input and suggestions of all elements of the Canadian gaming industry. Our goal is to make Canadian Gaming Lawyer a must read for professionals involved in the Canadian gaming industry.

What Is the IMGL? In this, our first issue, I want to take a moment to familiarize you with the IMGL. The IMGL membership consists of private practice attorneys with extensive experience in gaming law (General Members), as well as in-house gaming business legal counsel, educators, regulators, accountants, gaming industry consultants and young lawyers entering the gaming industry (Affiliate Members). The IMGL has over 170 members in 30 countries including three of Canada's provinces, as well as members in 28 states and the District of Columbia within the United States. A noted 17 of the 24 worldwide private practice lawyers listed in Chambers Global Guide as "notable Band One gaming lawyers" are IMGL general members, In addition, eighty-five percent of the IMGL general members practicing in the United States are listed in the current edition of The Best Lawyers in America.

The IMGL's commitment to education in the gaming industry is extraordinary. The IMGL conducts two gaming educational conferences each year, typically one in North America and one in a non-North American jurisdiction.

The IMGL's f lagship publication, Casino Law yer, is published four times a year and reaches well over 10,000 gaming professionals worldwide. The IMGL also publishes International Casino Law and Regulation Loose Leaf Service, sponsors the independently published Gaming Law Review and has partnered with a number of law schools that have gaming law courses to conduct educational conferences 4  |  Canadian Gaming Lawyer Magazine

and symposiums. It also publishes law reviews that focus on state of the legal issues in the industry. The IMGL is the official sponsor of and provides speakers to a number of gaming conferences worldwide.

Many IMGL members have authored a variety of gaming law books, pamphlets, treatises and published gamingrelated articles in virtually every gaming-related trade publication. In other words, the IMGL and its members are committed to serve as leaders in the development of a substantive body of gaming law source materials for the gaming industry worldwide.

Upcoming IMGL Events The IMGL 2008 Spring Conference is being held at the Villagio Inn & Spa in Yountville, California from May 21-23, 2008. Yountville is in the heart of fabulous Napa Valley. The conference will feature a day and a half of timely, comprehensive discussions of today's leading international gaming issues. In addition, the conference will host the presentation of the IMGL Gaming Executives of the Year awards. This year's recipients of this prestigious award are Frank J. Fahrenkopf Jr., President of the American Gaming Association, and Ernest L. Stevens Jr., Chairman of the National Indian Gaming Association.

In September, the IMGL will host a one-day gaming law symposium at the Drake University Law School in Des Moines, Iowa. Leading gaming law scholars will present and discuss comprehensive papers dealing with a variety of gaming law issues. The papers will then be published and distributed to IMGL members, law schools and other interested parties.

The IMGL will be conducting its two-day fall gaming conference in Berlin, Germany from October 29-31, 2008.

This conference is currently in the planning stages. Further details will soon be available on the IMGL website at www. gaminglawmasters.com.

IMGL Member Services The IMGL is dedicated to providing a broad range of services that benefit all members of the IMGL. Executive Director, Melissa Lurie, oversees member services and serves as the overall coordinator of the IMGL's numerous activities. She stands ready to respond to inquiries from members and persons who are interested in becoming active in the IMGL. She can be contacted at IMGLDirector@aol. com or at (303) 449-9955. Inquiries can also be directed to the IMGL's editor of Canadian Gaming Lawyer, Michael Lipton, at mdliptonqc@aol.com or (416) 367-0871 or me at rstocker@dickinsonwright.com or (517) 487-4715.

Robert W. Stocker II, Dickinson Wright PLLC Bob Stocker is current president of the IMGL & practises gaming law on an international basis.

Cover Story

Amendments Affecting Casinos Proceeds of Crime (Money Laundering) and Terrorist Financing Act

By Patricia Carnevale

Canada’s anti-money laundering and anti-terrorist financing regime was first established in the Proceeds of Crime (Money Laundering) Act. Given the changing face of global terrorism, the Act was adapted in 2001 to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). The PCMLTFA requires financial institutions and financial intermediaries to comply with certain client identification, record-keeping, reporting and internal compliance measures. This includes reporting suspicious and large cash transactions to Canada’s financial intelligence unit, Financial Transactions Reports Analysis Centre of Canada (FINTRAC).

P CM LT FA a mend ment s u nder Bill C-25 received Royal Assent in December 20 06. Some of those a mend ment s a re now i n force, with others effective June 23, 2008, December 30, 2008 and September 2 8 , 2 0 0 9. T he s e a mend ment s propose to enhance the PCMLTFA by strengthening “know your client” standards, closing potential gaps in the regime, increasing compliance, m o n it o r i n g a n d e n fo r c e m e nt , a nd st reng thening FI N TR AC ’s intelligence function. Administrative monetary penalties and the reporting of large cash disbursements are also introduced.

The following summarizes key amendments applicable to casinos

and comments on the effectiveness of several of the changes.

CHANGES AFFECTING REPORTING, RECORD KEEPING AND CLIENT IDENTIFICATION Suspicious Transaction Reports Currently, the requirement to report suspicious transactions to FINTRAC applies only on transaction completion. Effective June 23, 2008, casinos must also report attempted but uncompleted suspicious transactions.

Regardless of why the transaction was not completed (whether at the request of the patron or upon the decision of the institution) a STR is required if the attempted transaction is suspicious. The STR must explain May 2008 | 5

Cover Story why the transaction was suspicious or why the transaction was not completed and casinos must retain a copy of the report.

In addition, when reporting a suspicious transaction, “reasonable measures” must be taken to identify the patron before submitting a STR unless the casino has already identified the patron, or doing so would inform the patron that the report will be submitted. Interestingly, patrons are not required to provide this information in order for the transaction to be completed.

In many cases, therefore, identity may not be ascertainable unless the patron is known to the institution, so the requirement to take “reasonable measures” begs the question: What benefit is the STR to FINTRAC if it contains information about the transaction itself, but little, if any, information about the patron attempting the transaction?

Large Cash Disbursements Amendments effective September 28, 2009, will require casinos to report large cash disbursements to FINTRAC within 15 days of completing the transaction. Currently, large cash disbursements are recorded but not reported. Reporting entities will also be required to take reasonable measures to determine if the transaction is being completed on behalf of a third party. If so, the date of birth of the third party must also be recorded. Casinos should amend processes and procedures far in advance of September 2009 to be ready for this new reporting obligation.

Foreign Currency Exchange Transactions Currently, casinos must ascertain patron identity and keep a transaction ticket when conducting a foreign currency exchange transaction of $3,000 or more. The $3,000 threshold pertains only to casinos, as other institutions are required to keep a transaction ticket on all foreign currency transactions.

Effective June 23, 2008, casinos will also be required to keep a transaction ticket for all foreign currency exchange transactions, regardless of the amount. The requirement to ascertain identity for transactions of $3,000 or more remains unless the patron already has an account with the casino.

The new requirement brings casinos 6 | Canadian Gaming Lawyer Magazine

in line with other f inancial institutions conducting foreign exchange transactions, but is not anticipated to create additional operational burdens in that casinos (likely) maintain required documentation on all foreign currency transactions, regardless of the amount.

Doubts About Information Collected Currently, if a patron has been previously identified, there is no need to do so again if the patron is recognized. Effective June 23, 2008, if doubt exists about the information collected concerning the patron’s previous identification, casinos will be required to identify the patron again.

Date of Birth on Records Currently, when an account is opened or when a patron requests an extension of credit of $3,000 or more, casinos are required to record the name, address and principal business or occupation of the individual.

Effective June 23, 2008, there will also be a requirement to keep the patron’s date of birth on those records.

Can an Account Be Opened?

Effective June 23, 2008, if a casino cannot identify an individual or entit y at the account opening stage according to the identification criteria, the account cannot be opened at all.

CHANGES AFFECTING COMPLIANCE REGIMES Casinos are currently required to appoint a person responsible for implementing a compliance regime. Effective June 23, 20 08, additional measures to enhance compliance regimes will be required.

These include having up-to-date written compliance policies approved by senior management and maintaining a written, ongoing compliance training program for employees and agents authorized to act on behalf of the institution.

Risk Based Approach to Assessing Money Launder ing and Ter ror ist Financing T h e b i g g e s t ch a n g e i n t h e a r e a o f compliance regimes is the requirement to assess and document money laundering

and terrorist f inancing risk s specif ic to the instit ution using a r isk ba sed approach. The risk assessment must take into account the entity’s clients, business relationships, products and ser v ices, delivery channels, geographic location of activities and any other factors relevant to the operation. In addition, there is also a requirement to establish and document a review of policies, the risk assessment and training prog ram for effectiveness. The review is required every two years and is to be done by an internal or external auditor. If the review det er m i nes t h at t he r isk for money laundering or terrorist financing is high, measures to mitigate the risk will need to be implemented. Reasonable measures to keep client identification up to date and to conduct ongoing monitoring to detect suspicious transactions based on the size and complexity of the operation will also need to be taken.

ADMINISTRATIVE MONETARY PENALTY REGIME Currently, the PCMLTFA only allows for serious criminal penalties if the Act is contravened. These penalties can result in imprisonment for up to 5 years, fines of between $500,000 and $2,000,000, or both. Amendments effective December 30, 2008, give FINTR AC the ability to levy fines on lesser contraventions, with a stated purpose of taking a more balanced and gradual approach to compliance; not to punish institutions, but to encourage compliance.

V i o l a t i o n s a n d p e n a lt i e s w i l l b e classif ied in one of three categories: Minor, Serious and Ver y Serious. A series of violations identified on a Notice of Violation w ill be considered to be a serious violation if the total of the penalties is equal to $10,0 0 0 or more.

T h e r e g u l a t i o n s s p e c i f y m a x i mu m penalties for each category as it relates to the institution. Examples of those violations are: Minor ($1 to $1,0 0 0.0 0) – Failure to keep a large cash transaction record for every amount in cash of $10,000 or more received in the course of a single transaction;

Cover Story Serious ($1 to $10 0,0 0 0) – Failure to assess and document the risk referred t o i n sub s e c t ion 9.6(2), t a k i n g i nt o consideration prescribed factors; and Very Serious ($1 to $500,000) – Failure to include required information in a report.

With respect to these compliance regime changes, consideration of the FINTRAC function as the agency responsible for collecting and analyzing information supplied by reporting entities, including casinos, based upon triggering criteria in the PCMLTFA is worthwhile. FINTRAC is not a regulator of reporting entities. As such, the prospect of FINTRAC levying monetary penalties in instances of non-compliance with the Act is concerning. This is especially so where, for example, a reporting entity is fined for failing to assess and document money laundering and terrorist financing risks specific to the institution using a risk based approach (a “serious” violation subject to a fine of up to $100,000). In this example, the reporting entity may have fully complied with its obligations to complete and file all required

LCTs and STRs during a reporting period, but failed to asses what FINTRAC, based on its own analysis, regards as a high risk for money laundering or terrorist financing. At some level, therefore, this requirement delegates to the reporting entities one of the core functions of FINTRAC, namely, analyzing information supplied by reporting entities based upon triggering criteria in the PCMLTFA. Rather than delegating FINTR AC’s analytical function, the primary focus of the legislation should be to ensure the maximum f low of accurate information from reporting entities to FINTRAC. This, in the writer’s opinion, is the foundation upon which the international money laundering and terrorist-financing regime was built, and the motivation for moving beyond this at the current time is unclear.

Violations and penalties will be classified in one of three categories: Minor, Serious and Very Serious.

Patricia Carnevale heads the Niagara Casinos' Compliance Training Department and specializes in, among other things, Gaming Control Act, Proceeds of Crime, Liquor License and Responsible Gaming matters.

Canada’s Leading Gaming Law Practice Government Proposals • Casino Operations • Gaming Equipment & Services Registrations • Government Agency Advice

For further information, please contact: Michael D. Lipton Q.C. mdliptonqc@aol.com 416.367.0871

May 2008 | 7

Special Feature

The Canadian Gaming Industry Awards for Industry Leadership and Outstanding Contribution

By Lucie grys

For the past twelve years, the Canadian Gaming Awards Reception and Charity Gala has honored achievements in industry leadership. Industry colleagues have an opportunity to meet and mingle while celebrating the impressive achievements of their peers.

The distinguished award categories at this year ’s ceremony include awards for Industry Leadership and Outstanding Contribution and awards for exemplary Volunteerism and Community Service by an individual or an organization. Co-sponsored by the Canadian Gaming Association and the International Masters of Gaming Law, the award winners serve as inspirations to industry professionals.

Nominations from many aspects of the gaming industry are welcomed each year. Both public and private sectors can be recognized, First Nations and charitable gaming volunteers, operators, suppliers or advisors can also be put forward to the awards committee.

This year, Lynne Roiter LotoQuebec’s Corporate Secretary and Vice President of Legal Affairs, Bruce Caughill, Vice President of Legal Administration, Chief Compliance Officer and Corporate Secretary,

8 | Canadian Gaming Lawyer Magazine

Fa l l s v i e w M a n a g e m e n t G r o u p L.P. and Elliot Daradich, Director of Product Development at the Saskatchewan Gaming Corporation will be recognized for their long-term contributions to the gaming industry.

As examples of outstanding leaders who have made significant contributions in their areas of expertise, they each deserve to be commemorated for their efforts. Celebrating all aspects of the business, this year’s winners have each made a difference through their commitment to the industry. Whether it be implementing operational policies, effective management and organizational systems, regulatory and legal policy development, educational outreach, enhancing entertainment benefits or simply providing extraordinary service, honoring industry peers motivates others to make an impact in their own unique way.

Special Feature

Bruce Caughill, Vice President of Legal and Administration at Niagara Casinos, Chief Compliance Officer and Corporate Secretary of Falls Management Group L.P., the consortium of numerous international corporations that operates the Niagara Casinos including Fallsview Casino Resort Bruce Caughill is honored and Casino Niagara, is recognized for Industry Leadership and by industry peers with an award Outstanding Contribution to the for outstanding leadership and contribution in his field.

Canadian Gaming Industry Art Frank, President, Niagara Casinos, says, “Bruce has been a tremendous asset to our Executive team. His commitment to Niagara Casinos and his commitment to his community make him an instant leader. It is great to see Bruce recognized."

When hearing that he had been awarded such an honor, Caughill’s immediate reaction was one of surprise. “When Bill Rutsey called me I thought it was in regard to the Cares Foundation being nominated in another awards category," he confesses.

Armed with a Bachelor of Arts degree from Queen’s University, a Bachelor of Laws from the University of Western Ontario and Master of Laws from the University of Edinburgh, he was admitted to the Law Society of Upper Canada in the early 1990s. Practicing commercial regulatory law in both Toronto and Ottawa, he moved west to the Niagara region to join the Niagara Casinos in 1999.

Clare Copeland, CEO of Falls Management Company, recognizes Caughill’s achievements in the industry. He says, “Bruce has been a leader in all legal aspects of Ontario Casinos. Well respected among his peers in the industry, [he] has kept abreast of worldwide trends through attendance at seminars and conferences.

Called on by other facilities for his knowledge and insight, [he is a] key part of both FMC and Fallsview Management teams.”

Not only is Bruce Caughill responsible for the legal and compliance aspects of Niagara Casinos, he is also accountable for and oversees the Casinos’ security, health and safety, risk management and communications portfolios. He remarks on his own experience as having “had the benefit of coming into the industry in its infancy, and now, 10 years later, every aspect of the business has evolved. I believe it signifies the maturation of the gaming industry."

As a board member on the Board of Trustees for the Niagara Health System, he is also involved in the allocations committee for the Cares Foundation that was recognized by a Canadian Gaming Industry Award for Volunteerism and Community Service this year.

The Cares Foundation of Fallsview Casino Resort and Casino Niagara offers philanthropic support and community assistance. Giving back to the community in the area of $1 million dollars every year, local charities in the areas of healthcare, education, arts, culture and heritage reap the much-needed benefits.

Caughill is an affiliated member of the International Masters of Gaming Law and has also published a collection of letters penned by his grandfather about his experience as a soldier during World War One. The book is called Letters to Janet: The Reconstructed Great War Experience of James Irenus Adams, 26th and 104th New Brunswick Battalions.

As an active and esteemed member of the gaming industry and a man committed to others, Caughill advises future industry leaders to diversify and “get involved in as much as you can whether it's in your job description or not. Often, that is where leadership opportunities present themselves.”

Bruce Caughill is an example of how connecting with other sectors and peers within the gaming industry can lead a person in a varied and interesting career.

The award honors Caughill’s level of excellence and dedication, and serves to encourage others to strive for their best at all times.

May 2008 | 9

Special feature

”I was in the right place, at the right time,” is what Elliot Daradich says when he talks about the evolution of his career in the gaming industry. A constant with the Saskatchewan Gaming Corporation since 1995, he confesses to getting into the business quite by accident. “My mother-in-law saw an ad for a slot Elliot Daradich is honored with mechanic and thought I’d be good The Canadian Gaming Industry at the job,” he says. The rest, as Award for Industry Leadership and they say, is history.

Outstanding Contribution With his grassroots experience as a Casino Technician, Daradich claims, “it was trial by fire,” As a Casino Technician, he was part of the team that was responsible for installing 500 of the first coin operated slots at Buffalo Buck, a charity casino in Saskatchewan. Giving credit to his electronics background, he was promoted in two short years to Technical Service Manager and two years after that, to Manager of Slot Development. Today, as Director of Product Development, he is responsible for all slot products and electronic table games and looks after gaming promotions and systems.

Always on the cutting edge of the industry, he is constantly thinking about how to create the best entertainment experience for guests. Regularly reviewing how games are configured on the floor and developing promotions to increase gaming and customer satisfaction, he is also keenly interested in how to bring emerging gaming technologies to the casinos in Regina and Moose Jaw. Some of Elliot Daradich’s other impressive achievements include leading the Ticket In/ Ticket Out system on slot machines, creating and installing tracking tools, player redemption kiosks for Club members, electronic coupons and promotional programs. At all times, he ensures the staff is well versed in all aspects and makes sure that 10 | Canadian Gaming Lawyer Magazine

any enhancements to the slots are as seamless as possible.

Always interested in customer feedback, he can, at times, be found doing market research with guests at Casino Regina, where his office is located. “Gaming is a dynamic industry and the only constant is change,” he notes. “I really enjoy the hands-on approach in my job and the tangible results I see from product development,” he adds. Noting that one of the best parts of his job is the people he has met across the country who share a similar passion for the gaming industry, he encourages others in gaming to ask questions and always be open to learning. When the President and Vice President informed him of the award he recalls being “at a complete loss for words. I’ve been to the Gaming Summit and every Awards gala for the past 13 years and always imagined being a recipient,” he admits. This time, he’ll be one of the few honoured in front of the colleagues and industry peers who have nurtured him in his career and trusted his insights and expertise that have led him to where he is today. The award and recognition is richly deserved.

Special Feature

With a varied background spanning appointments in both Québec City and Montreal, Lynne Roiter has been a pillar of the legal gaming structure in Québec and around the world. A graduate of the University of Laval’s Faculty of Law, Roiter has contributed to building the infrastructure Lynne Roiter is honored for of organizations for growing Outstanding Leadership and enterprises for over three decades.

Contribution Award A member of the Québec Bar from the Canadian Gaming Industry since 1972, Roiter spent many years in private practice and as Corporate Secretary and Director Legal Services for the Québec Automobile Insurance Board. She joined Loto-Québec in 1985 as the Director of Legal Services and has seen the position evolve over time. Now serving as the organization’s Corporate Secretary and Vice President of Legal Affairs, she recalls, “when I started to work for Loto-Québec, the mandate was traditional lotteries and we were just moving into sports lotteries. My position has changed and diversified as the lottery business has,” she remarks, “Loto-Québec is like a full-service law firm and there is always a new challenge,” she adds.

Loto-Québec has grown to over 7,000 employees in a relatively short time frame. “Corporate structures needed to reflect the growth of the lottery business. It is a multi-faceted, multi-tiered industry which presents great legal challenges,” she adds. She has played an instrumental role in establishing the legal and regulatory framework that has permitted Loto-Québec to expand its gaming activities from lotteries to lottery videos, casinos, resort hotels and satellite bingo.

As a Board of Directors on all of Loto-Québec's subsidiaries, Roiter was named Secretary General and Vice-President, Legal Group in 1996. In this capacity she is responsible for the internal audit

team and Loto-Québec’s Responsible Gaming division. She is also a member of the corporation's managing committee. She sits on the board of the Interprovincial Lottery Corporation and was the Chairman of the Corporation from 1999 to 2001. Roiter also served as the Secretary General of the International Association of State Lotteries (AILE) and with the creation of the World Lottery Association (WLA), assumed the position of Secretary General of Legal Affairs. The WLA is comprised of lottery corporations from some 76 different countries around the world.

An avid skier, kayaker and devoted grandmother in her spare time, Lynne Roiter is humbled by her recognition by the gaming industry. As a recipient of the award for outstanding leadership and contribution, she reflects on the industry in which she has spent her lifetime as “one of dreams. It’s a great environment to work in with many challenges and wonderful people across Canada and the world.”

May 2008 | 11

The Long Arm of the Law

By Lawrence G. Walters, Esq.

Shortly after the adoption of the Unlawful Internet Gambling Enforcement Act,1 (“UIGEA”), in the closing days of the 2006 Legislative Session, many non-U.S.-facing Internet gambling operations turned their backs on the largest segment of the market for their services – U.S. customers.2 This decision resulted in losses exceeding $7.6 billion dollars on the London Stock Exchange, as Internet gaming stocks tumbled.3 Did these entities fear that the United States could assert jurisdiction over their foreign operations, and prosecute the companies or their owners, for violations of the newlyminted law? Since the vast majority of Internet gambling operations have historically been located outside the United States, did Congress intend for the UIGEA to be applied extraterritorially to these non-resident entities?

As numerous online gambling sites continue to operate in Canada, under the perceived or expressed authority of the Kahnawake Mohawk Territory, concerns linger regarding the ability of the U.S. government to apply its Internet gambling laws – including the UIGEA – against Canadian-based online gaming entities. This fear has been magnified by the bold assertions of jurisdiction by U.S. authorities against other foreignbased betting sites like BetOnSports.com4 as well as prosecutions against offshore financial service providers such as 12 | Canadian Gaming Lawyer Magazine

Neteller 5 and e-Gold, for violations of federal online gambling laws.6 This article will explore the complex and unsettled legal concerns surrounding extraterritorial enforcement of U.S. law in Canada, along with the related issue of extradition of Canadian citizens for criminal prosecution in the United States.7

Extraterritorial Application of Federal Statutes When it passed the UIGEA as part of the SAFE Port Act,8 the United States

Senate was undoubtedly aware that the vast majority of the targeted Internet gambling operations were located outside the United States of America.9 Therefore, it is reasonable to assume that Congress anticipated some degree of criminal enforcement under the UIGEA, against non-resident companies or individuals. So the question then becomes: What manner of enforcement can be expected or tolerated against Canadian citizens, consistent with U.S. and international law, as well as constitutional provisions and applicable treaties?

In order to initiate criminal charges against any entity located outside of the United States for violation of federal gambling laws, the presiding judge would need to determine whether extraterritorial application of U.S. law is warranted. When faced with this question, the courts must first determine: 1) whether the United States has the power to reach the conduct in question under traditional principles of international law; and 2) whether the statute under which the defendant is charged is intended by Congress to have extraterritorial effect.10 With respect to the initial inquiry, principles of international law recognize the ability of the government to prosecute a foreign defendant upon a showing of that individual’s intent to produce “effects” in the United States, without proof of a specific overt act or effect actually occurring in this country.11 While this “effects” test may seem to allow broad application of U.S. law against foreign individuals, in practice, extraterritorial enforcement is generally limited to major white collar criminal activity such as drug trafficking, child pornography and racketeering. 12 Theoretically, the Department of Justice could argue that online gambling produces some economic effects in the United States in the form of player losses or gambling addiction, in order to justify extraterritorial application of the UIGEA against a Canadian. Thus far, however, no published court decision has extended U.S. anti-gambling statutes to Canadians residing in Canada.

Once the court resolves the first inquiry pertaining to the power to apply the statute to foreign citizens under principles of international law, the court must then

analyze the specific statute at hand to determine whether it was intended to be applied to foreign citizens. If the statute is silent as to its extraterritorial reach, there is a strong presumption against such application.13 However, statutes may be given extraterritorial effect if the nature of the law permits it, and Congress intends it.14 Other federal anti-gambling statutes such as the Wire Act, 15 the Travel Act, 16 and the Wagering Paraphernalia Act 17 reference application to foreign commerce and travel, which may justify a finding that Congress intended those laws to be applied against foreign citizens. Some of the early Internet gambling cases seem to support this interpretation.18 Extraterritorial application can occur in other contexts as well. For example, three Canadians currently face extradition to the United States based on federal drug charges resulting from their worldwide cannabis seed selling business.19 Federal racketeering laws have also routinely been interpreted to apply to activities of individuals conducted outside the United States, so long as those activities produce effects in this country, as discussed above.20 It is unsettled as to what amount of the amount of activity, if any, must occur in the United States to justify the application of U.S. racketeering laws to a foreign entity. Mere preparatory activities or conduct far removed from the consummation of the offense will not suffice to establish extraterritorial application or jurisdiction.21 In sum, a variety of federal, criminal offenses can apply outside of the U.S., but only in limited circumstances.

Turning specifically to the UIGEA, Congressional intent is unclear, at best.

The criminal prohibitions contained in the legislation do not contain any reference to ‘foreign commerce’ as do the Wire Act, the Travel Act or the Wagering Paraphernalia Act. The operative definition of a prohibited ‘bet or wager’ in the UIGEA refers only to those activities prohibited by state, federal or Tribal law.22 The sole discussion of the law’s impact on foreign nations is contained in Sec. 803, entitled; “Internet Gambling in or through Foreign Jurisdictions.” That section contains no criminal or civil prohibitions of any kind, but merely encourages cooperation between

the U.S. and foreign nations in regards to information sharing on issues of money laundering, corruption or other crimes.

The intent of this section appears to focus exclusively on the rendition of voluntary assistance and cooperation between nations, and would not necessarily support an interpretation that the law should be applied extraterritorially.

Notwithstanding the above, Congress certainly understood that the primary targets of its criminal prohibitions on acceptance of Internet gambling funds were foreign entities, when enacting the UIGEA. 23 Therefore, it could be argued that, despite the lack of clear references to foreign commerce in the criminal prohibitions, the law was always intended to be applied to illegal Internet gambling transactions, wherever they occur.

Personal Jurisdiction Assuming, arguendo, that the UIGEA can be applied extraterritorially to a Canadian citizen or company, any court entertaining such a case must also satisfy itself that it has personal jurisdiction over the particular defendant. Where foreign citizens are involved, this becomes a complicated issue involving the interplay of legal principles along with notions of comity and diplomacy between the various nations.

Initially, when resolving the issue of personal jurisdiction, the courts of the United States will look at whether requiring a foreign citizen to defend against criminal charges in this country’s courts comports with notions of fair play and substantial justice.24 This determination focuses on whether the defendant has certain “minimum contacts” with the United States, so as to reasonably justify the assertion of personal jurisdiction over the non-resident defendant. These determinations are made on a case-by-case basis, often with little consistency. However, some authority exists for the proposition that mere advertising or promotional activities in the United States, without more, should not result on a finding of personal jurisdiction allowing the U.S. courts to hear cases against a foreign entity.25 As a general proposition, the courts are reluctant to force a foreign citizen to face trial in the U.S. as a result May 2008 | 13

of activity taking place beyond American borders.

Recently, however, the courts have begun to look at website activity as a basis for establishing minimum contacts and thus personal jurisdiction. Therein, the focus is on whether commercial transactions can be conducted on the subject website as a basis for determining whether the site owner should be subjected to jurisdiction in a particular forum.26 The courts have adopted a sliding scale of interactivity of websites – called the Zippo Test - that is used in making this determination.27 Purely informational websites, with no user interactivity, are at the one end of the scale, and rarely serve as a basis for establishing personal jurisdiction. On the other end of the spectrum is the fully interactive website, which allows customers to engage in commercial financial transactions via the site. 28 Virtually all Internet gaming websites would fall into the latter, fully interactive category, thus allowing the website activity to serve as a basis for establishing jurisdiction.

To the extent that a given Internet gambling site ceased accepting bets from U.S. customers after the adoption of the UIGEA, no interactivity with U.S. residents would exist, and thus the website would not likely serve as a viable basis for assertion of personal jurisdiction under this theory. However, if the site continued doing business with U.S. customers, a potential risk of establishing personal jurisdiction exists. Interestingly, no court to date has relied exclusively on the defendant’s website activity as a basis for finding the existence of personal jurisdiction over a foreign resident. If such a case arose, the defendant’s website activity would likely serve as only one factor in the jurisdictional analysis.

It should also be noted that a defendant’s arrest while physically present in the forum jurisdiction dispenses with the entire personal jurisdiction analysis. This principle was illustrated in the high profile arrest of the Canadian co-founders of Neteller, on Internet gambling violations stemming from 14 | Canadian Gaming Lawyer Magazine

the processing of betting transactions through their e-wallet service. 29 These individuals resided in the United Sates when they were arrested. The same occurred in connection with the arrest of David Carruthers of BetonSports. com, while changing planes in the U.S. on his way from Britain to Costa Rica.30 A defendant waives any challenges to personal jurisdiction when he or she is served with legal process while physically present in the subject jurisdiction.31

Extradition It would be one thing for the U.S. Department of Justice to seek an indictment against a Canadian citizen under the UIGEA, but it is quite another matter for that citizen to be brought across the border to face trial.

In fact, it does not appear that any published judicial opinions have acknowledged or approved of extradition of Canadian citizens for gambling crimes - let alone Internet gambling offenses. However, in order to determine the potential responsibility for compliance with the UIGEA by Canadian citizens, a review of the applicable extradition treaties and agreements is in order.

The United States and Canada are party to the Treaty on Extradition between Canada and the United States of America, entered into force on March 22, 1976 (hereinafter the “1976 Treaty”), which provides the framework for extradition of citizens between the U.S. and Canada. As with most extradition treaties, the concept of dual criminality is emphasized. That is to say, for extradition to be warranted, the criminal activity for which the foreign citizen is being sought by the prosecuting nation must be treated as criminal in both the “requesting jurisdiction” and the “requested jurisdiction.”

The 1976 Treaty allows for extradition if the offense involved is punishable by the laws of both jurisdictions by imprisonment or other forms of detention for a term exceeding one year or more.32 In addition, when the allegedly criminal activity was committed outside the territory of the United States by the Canadian citizen, extradition must be granted only where the laws of the requested state provide for jurisdiction

over the subject offense committed in similar circumstances.33 In the absence of this dual criminality element, extradition by the Canadian government would be purely voluntary and discretionary.34 The 1976 Treaty was supplemented i n 1 9 8 5 b y t h e Tr e a t y B e t w e e n t h e Government of Canada and the Government of the United States of America on Mutual Legal Assistance in Criminal Matters (“Mutual Legal Assistance Treaty”). 35 Under this Treaty, extradition is justified for any offense that may be ‘prosecuted upon indictment’ in Canada, or which constitutes a felony in the United States.36 However, Canada may deny assistance with extradition in any case, to the extent that the request is contrary to its public interest, as determined by its Central Authority. 37 The United States and Canada also agree, as part of the Mutual Legal Assistance Treaty, to share information regarding the nature and location of the financial proceeds of criminal activity, to assist in forfeiture and in the collection of fines imposed as a sentence in a criminal prosecution.38 Violations of the UIGEA are considered to be a felony level offense in the United States. 39 While Canada has toyed with the idea of passing a law similar to the UIGEA 40 thus far, such legislation does not exist. However, most legal analysts agree that Internet gambling is prohibited by the Criminal Code in Canada as an offense presentable by indictment. 41 However, Canada’s proscriptions focus on the gambling activity itself, and not the acceptance of financial transactions associated with Internet gambling, as does the UIGEA. Accordingly, the dual criminality element may be missing. This analysis boils down to how specifically similar the two criminal statutes must be, for dual criminality to exist. Obviously, each country approaches the issue of criminal legislation in a slightly different manner. Accordingly, identical precision will not be required for extradition to succeed. However, the two laws must prohibit essentially the same conduct for dual criminality to be established. 42

With respect to the UIGEA, dual criminality is arguably lacking given the distinction between online gambling, on the one hand, and acceptance of financial transactions related to gambling, on the other.

Conclusions Prosecution and extradition of Canadian citizens under the UIGEA seems to be at least theoretically possible under the relevant treaties and legal principles; however, the likelihood of this actually happening is remote. The initial determination as to whether the UIGEA was intended to apply extraterritorially seems to resolve against the Government. No reference is made to foreign commerce in the terms of the Act, and the effects produced by foreign online gambling entities are tangential at best.

Extradition appears to be a possibility, under the appropriate circumstances. Online gambling activity is punishable by a term of incarceration exceeding one year, in both the United States and Canada, thus satisfying that element of the 1976 Treaty. Acceptance of Internet gambling transactions under the UIGEA is a felony in the United States, while Internet gambling activity, itself, is prosecutable by indictment in Canada, thus satisfying the threshold requirements of the Mutual Legal Assistance Treaty. To the extent that the activity forming the basis for the alleged criminal offense occurred exclusively in Canada, as opposed to the United States, only discretionary extradition would be triggered under the 1976 Treaty, given the differences in approach to criminalizing online gambling activity taken by the respective countries.

The U.S. courts have taken jurisdiction over cases involving the criminal activity of foreigners, in appropriate cases, particularly those involving racketeering, drug, and other “vice” activities. Notably, illegal gambling activities can constitute ‘predicate offenses’ for racketeering, under U.S. law.43 While extraterritorial application of gambling statutes is exceedingly rare, some precedent arguably exists for such application, and the Congressional intent surrounding the UIGEA appears to contemplate some degree of foreign activity as triggering conduct for its criminal prohibitions.44 Internet gambling

operations allow bettors to conduct financial transactions via the website, including the opening of a player account and the actual placement of monetary bets. Accordingly, under the Zippo test for personal jurisdiction, the website activity may result in a finding of personal jurisdiction, authorizing the courts to proceed with a trial against a Canadian citizen. However, this would require the courts to apply the website jurisdiction test in a way it has never been applied with respect to legal claims against foreign citizens.

While the technical, legal basis appears to exist for this type of enforcement activity, it will be rare in practice. The United States does not exercise criminal jurisdiction over the entire globe, despite the apparent desires of some politicians. While federal authorities have sought and obtained the voluntary cooperation of foreign governments in connection with civil matters like forfeiture and asset seizures, 45 actual criminal prosecution is a much different matter.

Issues of comity and diplomacy arise when one country seeks to enforce a controversial, politically-motivated law against citizens of a friendly, neighboring nation.

The viability of the UIGEA is uncertain at present, with various bills pending that may substantially change or even gut the criminal prohibitions entirely.46 The idea of physically seizing a Canadian businessman (or woman) operating under the arguable authority of the Kahnawake Mohawk Territory for violation of a law which has been widely viewed as politically motivated and subject to reversal, is unseemly at best. Diplomatic repercussions would undoubtedly result.

While Canadian citizen operators might take little solace in mere diplomatic protection from U.S. extradition and prosecution, these concerns are real and render such an enforcement action unlikely at best.

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou, Walters & Mooney, www.GameAttorneys.com. He has been practicing for more than 19 years, and represents clients involved in all aspects involved in the online gambling industry. Nothing contained in this article constitutes legal advice. Please consult with your personal attorney regarding specific legal matters. Mr. Walters can be reached at Larry@ LawrenceWalters.com.

1. Unlawful Internet Gambling Enforcement Act of 2006, 31 U.S.C. §§ 5361–5367.

2. C. Krafcik, “The Infancy of Prohibition - Who's In, Who's Out,” Interactive Gaming News (October 16, 2006), see also, A. Sullivan, “New Law Won’t Stop Internet Gambling,” PCWorld.com (November 21, 2006).

3. Heather Timmons & Eric Pfanner, U.S. Law Causing Turmoil in Online Gambling Industry, N.Y. Times, Nov. 1, 2006, at C3.

4. U.S. v. BetonSports, PLC, et al., Case No.: 4:06-CR-00387-CEJ. 5. U.S. v. Stephen Lawrence, Case No.: 1:07-CE-00597-PKC-1.

6. U.S. v. e-Gold, Ltd. et al., Case No.: 1:07-CR-00109-RMC-1 7. No effort is made to evaluate the applicability or interpretation of Canadian law, as such issues are outside the scope of the author’s expertise as a United States based attorney.

8. Safe Accountability for Every Port Act of 2006, “SAFE Port Act,” Pub. L. No. 109-347.

9. As far back as 2003, Deputy Assistant Attorney General John G. Malcolm testified before a Congressional Committee that most online gambling establishments are operating in foreign jurisdictions. See, http://www.usdoj.gov/ criminal/cybercrime/malcolmTestimony318.htm; see also, Comments of Rep. Robert Goodlatte, Bill Sponsor in the Richmond Times-Dispatch (April 6, 2006) (“Online gambling was “sucking billions [of dollars] out of the United States”); see also, Rep. Jim Leach, Bill Sponsor, in the Wall Street Journal (April 4, 2006) (Offshore online gambling has become a “haven for money laundering activities”).

10. U.S. v. Noriega, 746 F. Supp 1506 (1990); supra at fn. 6.

11. Id. at fn. 4; see also, U.S. v. Columba-Colella, 604 F.2d 356, 358 (5th Cir. 1979).

12. Id.; see also, U.S. v. Moncini, 882 F.2d 401 (9th Cir. 1989) (Involving shipment of child pornography to Italian citizen in United States.)

13. Restatement (Third) of Foreign Relations Law of the U.S. §402 (1986); N. Rose, “Gambling & The Law®: The International Law of Remote Wagering,” John Marshall Law Review, Vol. 40, No. 4, p. 1169 (Summer 2007).

14. Noriega, at 1515.

15. Title 18, U.S.C. § 1084.

16. Title 18, U.S.C. § 1952.

17. Title 18, U.S.C. § 1953(a).

18. New York v. World Interactive Gaming Corp, 714 N.Y.S.2d 844 (N.Y. Sp. Ct. 1999); United States v. Cohen, 260 F.3d 68 (2d Cir. 2001), cert den. 536 U.S. 922, 122 S.Ct. 2587, 153 L.Ed.2d 777 (2002).

19. J. Emery, “No Extradition for Marc Emery, Michelle Rainey, or Greg Williams,” CannabisCulture.com (April 2008); “Marc Emery’s Extradition Proceedings Postponed,” Canada.com (January 21, 2008).

20. Noriega at 1516-1519.

21. North South Finance Corp. v. Al Turki, 100 F.3d 1046, 1051 (2d Cir. 1996).

22. 31 U.S.C. § 5362(10).

23. See, fn. 9, supra.

24. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 LED.2d 528 (1985); Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 104 S.Ct. 1868, 80 LEd.2d 404 (1984).

25. See, e.g., Mesalic v. Fiber Flirt Corp, 897 F.2d 696, 700, n. 10 (3d Cir 1990); Miller Yacht Sales, Inc., v. Smith, 384 F.3d 93 (3d Cir. 2004).

26. See Zippo Mfg. Co. v. Zippo.com, Inc., 952 F.Supp. 1119, 1124 (W.D. P.A. 1997).

27. Id. 28. Id. 29. David Baines, “Multi-billion-dollar charges for B.C. man,” The Vancouver Sun (January 17, 2007), found at: http://www.canada.com/vancouversun/news/ story.html?id=07c327e5-3aa6-4794-b600-617b347ade24.

30. Matt Richtel, “Arrest Made in Crackdown on Internet Betting,” New York Times (July 18, 2006), found at: http://www.nytimes.com/2006/07/18/ technology/18gamble.html.

31. Burnham v. Superior Court of California, County of Marin, 495 U.S. 604, 110 S.Ct. 2105, 109 L.Ed.2d 631 (1990) (citing extensive precedent).

32. 1976 Treaty at Article 2(1). (Office consolidation incorporating the protocol of amendments ratified and entered in to force; November 22, 1991.)

33. 1976 Treaty at Article 3(2).

34. Id. 35. CTS 1990 No. 19 (Entry into force 3/18/1985).

36. 1985 Treaty at Article 1.

37. 1985 Treaty at Article 5(1)(b).

38. 1985 Treaty at Article 17(1) & (2).

39. 31 U.S.C. § 5366 (violations are a 5 year felony offense).

40. J. Ivison, “Canada Targets Kahnawake Online Poker Sites and More for UIGEA Ban,” PokerPages.com, (March 6, 2008).

41. See Sections 202, 204 & 206, which are found in Part VII of Canadian Criminal Code R.S.C. 1985, c. C-46 , as amended (per Michael D. Lipton, Q.C.) 42. K. Prost, “Breaking Down the Barriers: International Cooperation in Combating Transnational Crime,” (“However, the modern test for dual criminality, incorporated in many extradition treaties and instruments, focuses not on technical terms or definitions but on the substantive underlying conduct.”)

43. Racketeer Influenced Corrupt Organizations Act, (“RICO”), 18 U.S.C. 196.

44. See fn. 9, supra.

45. U.S. v. Cohen, 60 F.3d 68 (2nd Cir. 2001), cert. den. 536 U.S. 922, 122 S.Ct. 2587, 153 L.Ed.2d 777 (2002).

46. See the Internet Gambling Regulation and Enforcement Act of 2007, HR 2046, introduced by Rep. Barney Frank (D-Mass); The Internet Gambling Study Act, HR 2140, introduced by Rep. Shelley Berkeley (D-Nev); the Skilled Game Protection Act, HR 2610, introduced by Rep. Robert Wexler (D-Fla); and the Internal Revenue Code Amendment, HR 2607, introduced by Rep. James McDermott (D-Wash).

May 2008 | 15

Giving Regulators the Heads-Up

By Michael D. Lipton Q.C. and Chad Finkelstein

Many members of the gaming industry are not aware of provincial gaming regulators’ requirements for the prior approval of any corporate change of the registrant. This article examines what a registrant can expect in terms of compliance with provincial gaming legislation in Ontario, British Columbia and Alberta when contemplating a change to the organization, structure or ownership of an entity registered with the respective gaming regulator. A future article to appear in this publication will provide further guidance with respect to the requirements for prior approval by gaming regulators in Saskatchewan, Manitoba, Quebec and Nova Scotia.

16  |  Canadian Gaming Lawyer Magazine

sections combine to mean that if a registrant is making a change to its officers, directors or partners or a change in the holders of 5% or more of its shares, the AGCO must be notified immediately and must ultimately approve of such change.

Therefore, it is good practice that prior to effecting a change in the officers or directors of the registrant that notice of such change be given to the AGCO, and no formal change in that respect be made until the AGCO has granted its approval. With respect to a change in holders of 5% or more of the shares of the registrant, prior approval is not required, but timely notice must be provided in accordance with the GCA, recognizing that the Registrar of the AGCO still maintains the power to approve or disapprove of such transfer.

Further, it is important to note that these provisions only apply to a registrant, and accordingly a parent company of the registrant which is not itself registered with the AGCO is not required to obtain the approval any change in its directors, officers, members or shareholders. However it is good practice to keep the AGCO aware of such changes on a timely basis.

Ontario

British Columbia

Under the Gaming Control Act, 1992 (“GCA”), notification to and approval of the Alcohol and Gaming Commission of Ontario (“AGCO”) with respect to certain corporate changes of the registrant are essential in order to maintain a valid registration. Pursuant to section 4(3) of the GCA, the registration of a supplier, be it a corporation or partnership shall expire immediately upon any change in the officers and directors of the corporation or membership of the partnership unless the Registrar of the AGCO has consented in writing to the change. This requirement is further clarified by the Regulations to the GCA. Section 34 of Regulation 385/99 states that every registered supplier shall notify the AGCO in writing within 5 days of any change to its officers, directors or partners or of any change in the holders of 5% or more of any of its shares. These two

The British Columbia Gaming Policy and Enforcement Branch (“GPEB”) mandates that prior regulatory approval of certain corporate changes is required in order for the registrant to maintain valid registration in that province. Section 73(1) of the B.C. Gaming Control Act states that a registrant must deliver notice to the general manager of the GPEB of: • a change in the directors, officers or associates if the registrant is a corporation; • a change in the associates if the registrant is a partnership; • the direct or indirect acquisition of 5% or more of the voting shares of the registrant or associate of that registrant that is a corporation; or • the direct acquisition of one or more securities issued by the registrant, other than the voting shares already described, if the amount paid up under the securities is

equal to or greater than 5% of the aggregate paid up capital of the registrant.

If the registrant includes the parent company, as is sometimes the case, then the requirements for prior approval of a corporate change will reach up the corporate ladder to the parent company.

The prior approval requirements are outlined in subsection 73(2) of the Gaming Control Act which states that notice of the corporate changes described as aforesaid must be given “to the general manager in advance”. The general manager will, within 60 days of receiving the notice, either approve or refuse the intended change, or specify a new date on or before which the general manager must decide whether to grant approval. Failure to comply with these requirements of registration may result in a suspension, cancellation or imposition of new conditions of registration.

Alberta The Alberta Gaming and Liquor Act (“GLA”) also contains provisions respecting prior approval and reporting obligations of organizational changes of the registrant.

Prior approval of the board of the Alberta Gaming and Liquor Commission (“AGLC”) is required when there is a change in the ownership of a registrant, but not a change of control of the registrant. Such change automatically results in the cancellation of the registration requiring the new controlling entity to apply to be registered.

Pursuant to subsection 30.2(1) of Alberta Regulation 143/96 to the GLA, a “proposed sale, assignment or transfer of a portion of a business” that is a sole proprietorship, partnership or privately-held corporation under which activities relating to a gaming registration are carried out “must be reported” to the AGLC and “must be approved by the board prior to the effective date of such sale, assignment or transfer”. The GLA does not specify how long prior to the effective date the change in ownership must be reported, however it is good practice to provide timely notice.

Subsection 30.2(2) of the Regulation May 2008 | 17

Failing to comply with these requirements may lead to a suspension or loss of registration

states that a sale, assignment or transfer of 5% or more of a business that is a publiclyheld corporation under which gaming activities are carried out must be reported to the AGLC within 10 business days after the effective date of such sale, assignment or transfer and must be approved by the board of the AGLC. However, under section 30.1 of the Regulation, if the sale, assignment or transfer of a portion of the business under which the gaming activities authorized by a licence or registration are conducted results in a change of control, the licence or registration is cancelled. Such change of control may refer to the sale of 50% or more of the shares of the corporate registrant, or, in the case of a gaming facility, the replacement of the operator with a new third party operator.

As well, pursuant to subsection 30.3(1), the board of the AGLC must approve the acquisition, other than by way of sale, assignment or transfer, of any financial interest in the facility to which the license relates the licensee or the licensee’s business

prior to the date on which such acquisition takes effect.

In view of these legislative requirements, while preparing for any change in the officers, directors, shareholders, or any other individual or entity which owns a part of or exercises any decision-making authority over the registrant, it is sound practice to carefully review the applicable legislation and advise the gaming regulator before such change takes effect. Failing to comply with these requirements may lead to a suspension or loss of registration, which as experienced members in the industry know, is the most valuable asset a gaming company owns.

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.

Chad Finkelstein is an associate with Elkind & Lipton LPP & a member of the gaming law section.

Chitiz Pathak LLP is pleased to announce that

Danielle Bush

has joined the firm as partner.

Danielle will continue her branding, marketing and regulatory practice with our firm, while maintaining a particular focus on issues pertinent to the gaming industry.

She brings a wealth of experience to clients in the gaming sector, whether they are land-based or on-line. Danielle, her practice, and her clients are very welcome additions to the firm’s rapidly growing securities and corporate law sections.

4 s DBUSH CHITIZPATHAK COM Delivering exceptional results without compromise.

18  |  Canadian Gaming Lawyer Magazine

Chitiz Pathak LLP 320 Bay Street, Suite 1600, Toronto ON M5H 4A6 phone 416.368.6200 fax 416.368.0300 www.chitizpathak.com

The UK White List – Recent Developments

By Tony Coles

The recent announcement from the UK Government that it has decided to add Tasmania to the so-called "white list" but not to add either Antigua or Kahnawake, has again brought these arrangements to the forefront.

It will be remembered that under the new UK regulation of all gambling (Gambling Act 2005) which was brought into force on September 1, 2007, the British Gambling Commission regulates all kinds of online gambling in the UK (an activity which new legislation describes as "remote gambling"). UK fiscal legislation also provides for its taxation.

With a view to protecting the UK player against what the legislators regard as risky sites outside the British Gambling Commission's remit, the new UK law prohibits the advertising and marketing

of such sites in the UK. It is noteworthy that it does not prohibit the use of such sites by players in the UK but merely their promotion and advertising.

Since the UK is part of the European Union, its legislation could not prohibit the advertising and promotion in the UK of online gambling lawfully provided from a licensed site elsewhere in the EU. Thus online sites licensed in, for example, Malta, can be lawfully promoted in the UK alongside sites licensed by the British Gambling Commission. In fact, many operators have opted to be

licensed outside of the UK because of the unattractive taxation regime that the UK fiscal rules impose.

Furthermore, when the new UK legislation was passing through Parliament, it was thought unfair to exclude from the opportunity to promote in the UK operators licensed in a jurisdiction which, although outside the UK and outside the European Union, are nonetheless regarded as "first tier" and are thus acceptable to the UK Government.

The 2005 Act provided a machinery under which the UK Government could identify such "first tier" jurisdictions and add them to the so called "white list".

In January 2007, the UK Government published a series of guidelines to be followed by jurisdictions which sought to be added to the "white list".

May 2008  |  19

The guidelines set out a number of principles: • The application had to be made by a government that holds the relative legislative and/or regulatory authority within a particular jurisdiction. The UK Government will take into account representations by other people and organizations but it will not accept an application other than from the government concerned. Thus it is not open to an operator based in such a jurisdiction to apply to the UK Government for the jurisdiction to be added to the "white list" and only the government concerned can do that, although the operator can add its representations in support of the application.

• The applicant government has to satisfy the UK Government that its regulatory regime provides for stringent regulatory control which, although not necessarily replicating the UK legislation, nonetheless satisfies the UK Government. The applicant government must address all of the issues which the UK regulations cover and is substantially similar in intention and effect. The applicant also has to show that its jurisdiction has the capacity, as well as the technical and regulatory ability and the political impetus, to enforce its own regime.

• The intention behind the guidelines is that the applicant government has to provide for its licensed operators substantially the same regulation as that provided under the UK rules so that the UK player has a very similar level of protection.

• Applications to the UK Government for inclusion on the "white list" can be made at any time. There is no backdating of "white listing" so that the operators within an applicant jurisdiction cannot rely upon the exemption from the prohibition on marketing and advertising in the UK unless and until the jurisdiction is included in the "white list".

Although most of the attention on 20 | Canadian Gaming Lawyer Magazine

•

•

•

•

the "white list" relates to its effect on online gambling, the provisions also apply to terrestrial gambling. Thus, unless a jurisdiction is on the "white list" (or is within the EU) its operators of terrestrial gambling establishments (such as casinos or bingo halls) cannot advertise in the UK. For example, because Nevada is not on the "white list", it is illegal for the operators of Las Vegas casinos to promote or advertise them in the UK. It is, of course, legal to advertise a hotel located in Nevada but it is now necessary to consider the extent to which that hotel’s gaming facilities can be mentioned before an offence is committed.

The UK Government originally announced that seven applications had been received for inclusion on the "white list" and two were initially approved, Alderney and the Isle of Man. Those from Alexander (Canadian Reservation), the Netherlands Antilles and Tasmania were rejected.

Subsequently, in an announcement released by the UK Government just before the end of 2007, the UK Government announced: that following the introduction of amending tax legislation in Tasmania, the UK Government had reconsidered its application and had now added Tasmania to the "white list". that despite what it described as an ongoing careful assessment of the applications by Kahnawake and Antigua, the UK Government had decided not to "white list" them.

The UK Government has not given any detailed reasons for its decision not to "white list" any of the failed applicants but it must be assumed that the failures arise because either: the applicant in question did not satisfy the UK Government that it is "... the government which holds the relevant legislative and/or regulatory authority ..."; or, if it did, that the regulatory regime in the applicant jurisdiction did not properly address the same concerns as are covered by the UK law;

• o r, i f i t d i d , t h a t t h e a p p l i c a n t jurisdiction did not have the capacity, ability or political impetus necessary to enforce that region.

It is interesting to speculate on what might now take place. The example o f Ta s m a n i a i n d i c a t e s t h a t t h e U K Government is open to a reconsideration of an application if the circumstances in the applicant jurisdiction change. It is always open to an applicant to re-apply since there is no provision either in UK law or in the guidelines limiting an applicant to one try nor is any penalty imposed if its application fails. There would be little point in an applicant simply re-applying without identifying changes from an earlier failed application.

Although the guidelines indicate that the UK's Gambling Act contains no provision for any appeal from a refusal, it may well be open to an aggrieved applicant to seek the assistance of the UK courts on an application for a judicial review of the decision. Judicial review of decisions by Government officials and other public bodies is well established but its use in these circumstances would clearly be novel and it would be for the courts to decide the extent to which they would interfere. What is clear is that, because of the importance of the UK as a gambling market, it is unlikely that we have heard the last of applications for "white listing."

In addition to a thriving mainstream commercial law practice, Jeffrey Green Russell’s senior partner, Tony Coles, is renowned in the leisure industry for his specialist knowledge of gaming and betting law. He regularly speaks to international audiences on gaming issues and is a frequent contributor to gaming law periodicals and journals. He is currently Vice President of the International Masters of Gaming Law as well as being a member of the Society for the Study of Gambling, the Remote Gambling Association, the European Association for the Study of Gambling and the International Association of Gaming Attorneys.

He can be reached at firms-arc@jgrlaw.co.uk

How to Conduct a Good Faith Dismissal: 10 Simple Rules a Gaming Facility Operator Should Follow

By Christine Jonathan

It doesn’t matter what business you are in, having to dismiss an employee is never an easy or pleasant task. Moreover, since the 1997 Supreme Court of Canada case of Wallace v. United Grain Growers Ltd., employers now have an obligation of "good faith and fair dealing" in carrying out a dismissal. Failing to conduct a “good faith” termination may result in a wrongful dismissal claim or in an increase in the notice period an employee would otherwise be entitled to receive following a without cause termination, known as the “Wallace factor”.

Your exposure as a gaming facility operator to a claim for wrongful dismissal damages based on the Wallace factor can be greatly reduced by following these 10 simple rules, which require an operator to be sensitive to how an employee may respond to the manner in which he or she is terminated.

Tip 1: Scheduling a dismissal meeting Day of the Week : Although not applicable to every employee, some employees may wish to contact a lawyer or financial advisor as soon as possible after termination. Scheduling a dismissal meeting earlier in the week provides an employee with ample opportunity to seek professional May 2008 | 21

assistance. Wherever possible, terminatng an employee before a holiday or scheduled vacation should be avoided.

Time of Day: Wherever possible, the meeting should be scheduled towards the end of the day so that the dismissed employee can leave the meeting without having to engage with co-workers. Scheduling the meeting late in the day will also allow the employee to seek the support of friends or family after the work day.

How long should the meeting last?: The purpose of the dismissal meeting is to inform the employee that his or her employment is being terminated. While the employee is entitled to be advised of the reason for termination, a debate of the reasons should be avoided. The meeting should be no more than 15 minutes, which will allow sufficient time to advise of the reason for termination, provide the separation package and allow the employee to ask any questions relating to procedure.

Tip 2: The location of the meeting The meeting should be conducted in a "neutral" location, such as a board room, or in the employee's private office. This helps to reduce the chance that the employee will feel intimidated, and it will minimize the rumours that may be generated by those employees who observe the employee being summoned to a supervisor’s or manager’s office or the Human Resource Manager’s office. Picking a neutral location will also provide the individuals conducting the termination with an easy exit after the meeting and allow the employee some time on his or her own, if so desired.

Tip 3: Who should be present at the dismissal meeting?

It is prudent to have a third party present at the meeting to take notes of what is said both to the employee and by the employee, and to verify that the letter of dismissal is hand-delivered to the dismissed employee (i.e. to confirm the date upon which written notice of termination is given). This third party can be the employee’s supervisor, manager or someone from the Human Resources department.

Tip 4: The termination package and ILA If the employee is being given a termination package which requires him or her to sign a release, the operator should not press the 22 | Canadian Gaming Lawyer Magazine

employee to sign the release on the spot.

It is prudent to provide the employee with a reasonable amount of time to obtain independent legal advice (“ILA”) regarding the terms of the temination package, including the release, and whether to accept it.

Tip 5: Relocation Counselling If the operator plans to offer relocation counselling services as part of the termination package, it is a good idea to either have the relocation counsellor present at the workplace to immediately meet with the employee, or to have the counsellor’s business card available to give to the employee at the time of the dismissal meeting.

Tip 6: Reference letters Whenever possible, the operator should be prepared to give a letter of reference. It should be ready to be given to the employee at the dismissal interview. All reference letters should be truthful and not inconsistent with any position the operator may be taking with respect to whether there was "just cause" for the employee's dismissal. The sooner the employee receives a letter of reference, the sooner he or she can commence the search for new employment. The earlier the employee mitigates his or her damages by securing a new position, the smaller the potential claim he or she may have for damages for wrongful dismissal.

Tip 7: Record of Employment The employee’s Record of Employment (ROE) should be ready to present to him or her at the dismissal meeting. This will permit the employee to apply for Employment Insurance benefits without delay. The operator should ensure that the reason given on the ROE for the “interruption in the employee’s earnings” is consistent with the reason given at the dismissal meeting for the employee’s dismissal. If the ROE is not ready at the time of the meeting, it should be mailed to the employee within five days of his or her dismissal.

Tip 8: Notice to be Sent to Other Employees or the Public Where you are terminating an employee in a managerial or supervisory role, or one who regularly deals with the public, you may be required to notify the employee’s

staff, co-workers or the general public that the employee is no longer employed by the operator. In these circumstances, whenever possible, you should discuss what you will be saying to other employees and the public at large with the employee at the termination meeting, if appropriate. If you can reach an agreement on wording of an announcement that permits the employee to save face, you will minimize the chances of litigation against the operator.

Tip 9: Dismissal for Just Cause The court in Wallace stated that if an employee is being dismissed for just cause, the employer ought to be “candid, reasonable, honest and forthright … and should refrain from engaging in conduct that is unfair or that is in bad faith by being, for example, untruthful, misleading or unduly insensitive." In practice, this means that an employee ought to be given a detailed summary of all the allegations/incidents the operator is relying upon to establish cause, and should make sure that the dismissal letter confirms that the dismissal is for “just cause” and is for the reasons discussed with the employee that day. The letter should be given to the employee at the end of the dismissal meeting.

Tip 10: The Return of the Operator’s Property and the Removal of the Employee’s Personal Property At the conclusion of the dismissal meeting, arrangements should be made with the employee for the return of any and all of the operator’s property currently in his or her possession, as well as the return of the employee’s personal belongings if he or she is not able to collect them that day. This should be done promptly irrespective of whether the employee signs a release or rejects the termination package.

Following these 10 simple rules will reduce the stress and anxiety generally experienced when terminating employees, and more importantly, will reduce the exposure of the gaming facility operator to a wrongful dismissal claim based on a bad faith dismissal.

Christine Jonathan is a member of the gaming law section of Elkind & Lipton LLP who focuses extensively on employment law and litigation.

Update on I-Gaming in Canada – Part I

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 publiclytraded 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.

May 2008 | 23

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 24 | Canadian Gaming Lawyer Magazine

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-SaintConstant, 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 May 2008 | 25

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 26 | Canadian Gaming Lawyer Magazine

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 deduction 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/ news/5858484.html

May 2008 | 27

Mobile Gaming – Is a Phone a Place?

By Danielle Bush

Mobile gaming raises a number of interesting legal issues for all participants, directly or indirectly, in the gaming industry in Canada. This paper looks at only one issue, although it is arguably the central, or at least the most challenging, of them all – where do the games played on a mobile phone take place, and would that place, if a specific place does exist, constitute a “place” for the purposes of s. 201 of the federal Criminal Code (the “Code”)?

28 | Canadian Gaming Lawyer Magazine

Mobile gaming raises a number of interesting legal issues for all participants, directly or indirectly, in the gaming industry in Canada. This paper looks at only one issue, although it is arguably the central, or at least the most challenging, of them all – where do the games played on a mobile phone take place, and would that place, if a specific place does exist, constitute a “place” for the purposes of s. 201 of the federal Criminal Code (the “Code”)?

Mobile Gaming A “mobile game”, at its most fundamental, is a game played on a mobile phone, a smartphone, PDA or any other type of wireless device. Until recently, the technology precluded playing anything other than the simplest of games on a mobile device. However, due to the rapid development of a third generation of mobile technology, things have advanced to the point where individuals can now play games (both “play for fun” and “play for money”) with other individuals on their mobile phones.

While games are typically obtained from the wireless carrier who is providing the phone service, they can also be sideloaded onto the device from the Internet. For example, it is now possible to download poker software to a mobile phone from a provider such as bwin’s Ongame and play poker live with other users on your phone.

Section 201 of the Code Section 201 is short and apparently simple.

It reads: (1) Every one who keeps a common gaming house or common betting house is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years.

(2) Every one who (a) is found, without lawful excuse, in a common gaming house or common betting house, or (b) as owner, landlord, lessor, tenant, occupier or agent, knowingly permits a place to be let or used for the purposes of a common gaming house or common betting house,

is guilty of an offence punishable on summary conviction.

Unfortunately the apparently straightforward provisions of this section cannot be understood without reverting to the definitions found in s. 197 of the Code. Those definitions in turn add an extraordinary layer of complexity over top of the two short paragraphs in s. 201.

For the purposes of this paper, the operative definitions are: “common betting house” means a place that is opened, kept or used for the purpose of (a) enabling, encouraging or assisting persons who resort thereto to bet between themselves or with the keeper, or (b) enabling any person to receive, record, register, transmit or pay bets or to announce the results of betting; “common gaming house” means a place that is (a) kept for gain to which persons resort for the purpose of playing games, or (b) kept or used for the purpose of playing games

(i) in which a bank is kept by one or more but not all of the players,

(ii) in which all or any portion of the bets on or proceeds from a game is paid, directly or indirectly, to the keeper of the place,

(iii) in which, directly or indirectly, a fee is charged to or paid by the players for the privilege of playing or participating in a game or using gaming equipment, or

(iv) in which the chances of winning are not equally favourable to all persons who play the game, including the person, if any, who conducts the game; “keeper” includes a person who (a) is an owner or occupier of a place, (b) assists or acts on behalf of an owner or occupier of a place, (c) appears to be, or to assist or act on behalf of an owner or occupier of a place, (d) has the care or management of a place, or (e) uses a place permanently or

temporarily, with or without the consent of the owner or occupier thereof; “place” includes any place, whether or not (a) it is covered or enclosed, (b) it is used permanently or temporarily, or (c) any person has an exclusive right of user with respect to it; As has been noted many times by other commentators, these definitions are dated, if not positively archaic. Consequently it is difficult to predict how they will be applied by the courts to a wireless, borderless world. One thing, however, is clear. In order to have a betting or gaming house, one must have a place to which persons resort to play games or engage in betting activities. The question then becomes, for our purposes, whether persons playing games with each other using their mobile phones are resorting to a “place” for the purposes of s. 201.

If they are doing so, then the person that is the owner of that place may be a “keeper” according to the definition set out above, and thus open to prosecution under s. 201 for keeping a common g a m i n g h o u s e . Fu r t h e r, t h e r e i s a theoretical argument that even the players themselves may be open to prosecution under ss. 201(2)(a) since it could be argued that while they are playing games on their mobiles, they are in an (albeit virtual) common gaming house.

Application of s. 201 to Mobile Games As noted previously, it is now possible to download or sideload software to a mobile which will allow the user to, for example, play poker real-time with other players. It is also possible to play for money on one’s mobile device using that software. There are several different scenarios that are of interest in this type of gaming.

Server-based Mobile Games A GPRS connection, or even higher speed 3G technologies like HSDPA, can be used to share data globally. It is therefore possible for a large number of mobile games to be connected with a single server and to share data among all of the players. The server May 2008 | 29

acts like a router between the mobile phone users who are playing the game.

If a Canadian is playing poker for money on his mobile using this system, and the server is also located in Canada, is any person in this scenario operating a common gaming house? The first, and possibly the most pressing question is, whether the gaming is being conducted in a “place” as defined in s. 197. As noted, the Code does not provide a definitive definition of that word – rather the drafters of the Code kept the concept open-ended by stating that a place is a place, whether or not it is covered or open, etc. Assuming the courts will apply a very broad interpretation to this word (as the drafters clearly had intended), it is possible that they would find the central server to be a place for the purposes of s. 201. However, the courts are far less likely, in my view, to find the operator of the server to be the keeper of a common gaming house unless the operator was

aware of the use of their server for this purpose.

Further, in the same scenario, it is likely there will be a website to which the players link in order to access the server and/or to obtain other services provided by a gaming site such as the transfer between players of monies won and lost.

It is possible that the website could also be considered to be a place to which the players were resorting for the purpose of playing games. In that case, and particularly if the website was operated from Canada, the website operator could be charged with keeping a common gaming or betting house.

Peer to Peer Mobile Games Peer to peer (“P2P”) data exchanges are now notorious, primarily as a result of the battles waged between content owners on the one hand, and, on the other, consumers wishing to download and share content without any form of payment to the content

owners. The two most famous cases are both American – the Napster case1 closely followed by its successor, Grokster2.

Napster distributed free software that allowed users to share music files. However, they also maintained a central search engine which was critical to the entire operation since it located files residing on users’ PCs or servers and generally acted as a conduit, passing that information between the “peers”. Although, in the case of Napster, there was no intervening server on which the data was stored, the Napster construct is somewhat analogous to server-based games because there is an intermediary between the two users (or players) facilitating the transactions.

After Napster was found liable in 2001 for contributory copyright infringement, it ceased operations. However it was almost immediately replaced by Grokster. While Grokster also supplied free file-sharing software, the differentiating factor was that the networks of users were not maintained

Congratulations on the launch of Canadian Gaming Lawyer Magazine!

Adding Canadian Gaming Lawyer to Canadian Gaming Business is an excellent idea and we would like to congratulate you on this great addition

30 | Canadian Gaming Lawyer Magazine

or controlled by a central body. Instead, the software set up users as part of a system of nodes which interconnected with each other. All of the users on the network communicated with each other without recourse to any central system.

Although Grokster was also ultimately found to be guilty of contributory copyright infringement, the advanced P2P networking it pioneered continues to develop and to be used for a wide variety of legal (and doubtless illegal) purposes.

Thus, it is now possible for mobile users to play games with others without the need for a server or a website interface.

Clearly, they can also engage in betting and other activities that, if involving actual cash, would likely be deemed to be illegal, all other indicia being present.

The question then is whether, in this scenario, anyone is operating a common gaming or betting house? The really big question is “where is the place to which these players are resorting to play games?”

They are each playing on their own mobile phone. There is no third party intermediary. There is no central server.

There is no website to which they must all come in order to play. I therefore see no basis for finding that there is a “place” involved. Without a “place”, no gaming house exists and there is no contravention of s. 201.

Clearly this analysis does not address a rather fundamental point. No mobile user could, practically speaking, engage in play-for-money gaming activities if there was not a third party acting as banker and general administrator of the operation of the games. If a party is involved in that capacity, they would likely be exposed to charges under a number of the other sections of the Code addressing illegal gaming, betting and lotteries. However, at the least, it appears they are unlikely to be found guilty of an offence under s. 201.

GAMING

G

L AW

Danielle Bush of Chitiz Pathak focuses on I-gaming law matters. She can be reached at dbush@chitizpathak.com.

1 A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1013 (9th Cir. 2001) 2 MGM Studios, Inc. v. Grokster, Ltd et al. 545 U.S. 913 (U.S. Supreme Court 2005)

IN

CANADA:

FORGING NEW FRONTIERS

aming entertainment in Canada has blossomed as one of the fastest-growing economic sectors, due in part to recent privatization initiatives, as well as the growing demands of consumers and businesses.

As a leader in all areas of corporate law in Canada, LANG MICHENER LLP is proud of its continued representation and understanding of the unique challenges and diverse interests of this industry.

Our knowledge and depth of experience involving the structuring, development, financing and implementation of gaming venues, including casinos and horseracing tracks as well as promotional strategies, has successfully assisted many businesses.

In addition, our industry-leading professionals draw upon a broad background of valuable experience in the following areas: Acquisitions, dispositions, mergers and corporate restructuring; Financing, including public and private debt and equity transactions, bank loans and project/construction financing; Regulatory and governmental approval; Dispute resolution; Developing strategies for the execution of contests, sweepstakes, coupon offers, cross-promotions and a broad range of gaming tactics used to encourage direct sales; and Ensuring corporate compliance with the laws that apply to promotional techniques, including the Criminal Code, the Competition Act and all applicable provincial laws.

Visit WWW.LANGMICHENER.CA for more information

DESMOND BALAKRISHNAN is a partner at Lang Michener’s Vancouver

office and has built a successful gaming law practice. Earning a reputation as a leading gaming lawyer in Canada, he acts as chief legal counsel for Canada’s largest operator of gaming casinos and race tracks, Great Canadian Gaming Corp. He is also a member of the International Masters of Gaming Law. Contact him at DBALAKRISHNAN@LMLS.COM or 604-691-7462.

STACEY HANDLEY is a partner at Lang Michener’s Vancouver office and leads the Real Estate and Banking Group. A substantial part of her practice involves the acquisition and development of casino and racetrack properties across Canada on behalf of Great Canadian Gaming. Since 2003, she has been involved in many significant real estate and financing matters within the gaming sector totaling more than $2 billion dollars.

Contact her at SHANDLEY@LMLS.COM or 604-691-7453.

JOHN MORRISON has been a partner with Lang Michener in Vancouver for over two decades. Recognised as a leading lawyer in Canadian banking law, John assists clients in the gaming sector in structuring and implementing a wide range of debt financing transactions, including credit facilities and note issues. He has acted as counsel to Great Canadian Gaming in recent financing matters with an aggregate value exceeding a billion dollars. Contact him at JMORRISON@LMLS.COM or 604-691-7411.

CHRISTINE J. MINGIE is an associate at Lang Michener’s Vancouver office.

An experienced corporate and regulatory lawyer whose practice focuses on serving the entertainment and natural resources industries.

Christine has a specialized practice in entertainment and gaming law and advises clients on all aspects of entertainment and gaming law matters. Contact her at CMINGIE@LMLS.COM or 604-691-7472.

May 2008 | 31

Napa Valley, California May 21-23, 2008

Come to Wine Country!

The 2008 IMGL Spring Conference heads to the Villagio Inn & Spa, Napa Valley, Calif., May 21-23, 2008.

Learn more and register online at www.IMGLConference.com

Timely. Relevant. Important.

International Masters of Gaming Law invites you to the premier law conference that addresses cutting-edge legal issues important to the gaming industry. IT IS ESSENTIAL FOR: � Attorneys � Internet Gaming Operators � Regulators � Corporate Counsel � Casino Executives � Public Officials � Gaming Vendors � Marketing Executives � Educators