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You are here >   Extra-Territorial iGaming
  
 
 
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Richard Swayze
 
 Canadian Gaming Business Spring 2013
 

 

Legal & Regulatory - Archives
Extra-Territorial iGaming Emanating from Within Canada
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The legal status of online gaming (“iGaming”) in Canada remains a matter of conjecture in Canada. Most often, this conjecture centres around whether an iGaming operator based entirely outside Canada may lawfully accept customers from within Canada. A less considered question is whether an iGaming operator located within Canada can lawfully offer iGaming to customers outside Canada without attracting liability under the Criminal Code (the “Code”).

This is not a purely theoretical issue; a growing number of European jurisdictions license foreign iGaming operators, permitting them to accept customers from within those countries. In many such countries, the computer servers used to operate iGaming do not have to be physically located in the licensing jurisdiction. Our belief is such servers could be located in Canada without offending the gaming prohibitions in the Code, as long as customers are only accepted from countries that explicitly permit the iGaming activity.

 

 

 


The issue has never been addressed by any Canadian court, but two cases have touched upon it indirectly. In R. v. World Media Brokers Inc. (“World Media”), (1) the defendants offered European lottery tickets to U.S. residents from locations in Canada. There was no evidence it was lawful to sell or purchase these tickets in the U.S. In Reference re Earth Future Lottery (“Earth Future Lottery”) (2), the Province of Prince Edward Island (“P.E.I.”) proposed to license a charity to conduct and manage an online lottery that would have accepted customers internationally and throughout Canada. It was intended that this Earth Future Lottery would operate in all provinces of Canada without being licensed by any of those provinces except P.E.I., and internationally without regard to whether it was expressly legal to offer such a lottery in any foreign jurisdiction.

In World Media, the defendants sought to shelter under the exemption provided by s-s. 207(1)(h) of the Code, which reads as follows:
 

“Notwithstanding any of the provisions of this Part relating to gaming and betting, it is lawful: . . .

(h) for any person to make or print anywhere in Canada or to cause to be made or printed anywhere in Canada anything relating to gaming and betting that is to be used in a place where it is or would, if certain conditions provided by law are met, be lawful to use such a thing, or to send, transmit, mail, ship, deliver or allow to be sent, transmitted, mailed, shipped or delivered or to accept for carriage or transport or convey any such thing where the destination thereof is such a place...”

The Ontario Court of Justice held that s-s. 207(1)(h) of the Code did not

assist the defendants, because it was not established that the U.S. was a place where it was, or could have been, lawful to use the lottery tickets. This implies that had the defendants offered lottery tickets to persons in foreign jurisdictions where it was lawful to sell or purchase them, they could have been acquitted under s-s. 207(1) (h) of the Code.

The Ontario Court of Justice in World Media clearly considered the sale and purchase of gaming privileges to be a foreign “use” of something “relating to gaming and betting” which could be rendered lawful in Canada by s-s. 207(1) (h) of the Code. As the court stated:

“While the purpose of [s-s. 207(1)(h)] may be to permit Canadian printers or manufacturers to supply lottery-related materials to places where they can be lawfully used, I agree with the defence submission that its language would appear not to preclude the sending of material soliciting participation in an ongoing lottery to a place where it is or could be lawful to do so.”(3)

This statement of law was left undisturbed by the Ontario Court of Appeal in its decision upholding the convictions. World Media indicates that s-s. 207(1)(h) exempts the conduct, management and operation of a lottery scheme within Canada from prosecution, where the lottery scheme only allows the sale and purchase of gaming privileges to customers in foreign jurisdictions where the laws of those foreign jurisdictions render such sales and purchases expressly lawful.

In Earth Future, the P.E.I. Court of Appeal was more reluctant to apply s-s. 207(1)(h) to a the sale and purchase of gaming privileges. The Court sought to limit the ambit of s-s. 207(1)(h) as not applying to those seeking “extra- provincial” customers, stating that “the only activities Parliament permits to occur extra-provincially relating to gaming is the making, printing, and transporting of anything to be used in a place where it would be legal,” and “ the list of permitted extra-provincial activities under s-s. 207(1) (h) is very limited.”

Accordingly, the P.E.I. Court of Appeal in Earth Future expressed the opinion the authorization provided by s-s. 207(1)(h) was not “broad enough to permit all the activities that would be taking place extra- provincially in the operation of the Earth Future Lottery,” concluding: (4)

“The fact s-s. 207(1)(h) exists at all serves to indicate that even the few extra- provincial activities referred to therein would not be permitted in its absence. It also indicates Parliament intended that any activity necessary to gaming not referred to in s-s 207(1)(h) must occur, if at all, only in the province where it is lawful.” (5)

The P.E.I. Court of Appeal did not acknowledge the World Media decision or its statements on the application of s-s. 207(1)(h).

The Supreme Court of Canada dismissed an appeal brought by P.E.I. from the findings of the P.E.I. Court of Appeal, providing a one-sentence decision: “The Court would dismiss the appeal, substantially for the reasons of the Chief Justice of Prince Edward Island.”(6) “Substantially” means “most, but not all.”(7) Accordingly, while the Supreme Court agreed the proposed Earth Future Lottery would have been unlawful, it did not specifically concur with the reasons of the P.E.I. Court of Appeal relating to the application of s-s. 207(1)(h).

In our view, the interpretation of s-s. 207(1)(h) of the Code set out in World Media better accords with both the legislative history of section 207 of the Code and the generally understood principles on the application of Canadian criminal law Canadian-based activity creates effects that are experienced outside Canada. Subsection 207(1)(h) of the Code should accordingly apply to the conduct, management, and operation of a lottery scheme within Canada, where that lottery scheme only allows the sale of

gaming privileges to customers in foreign jurisdictions whose laws explicitly permit the sale and purchase of such gaming privileges.

Section 207 of the Code was enacted in its present form as the result of a June 3, 1985 agreement between the federal and provincial governments (the “1985 Lotteries Agreement”).(8) Pursuant to the 1985 Lotteries Agreement, the Government of Canada undertook to remove itself from the field of gaming and betting and to refrain from re-entering that field, and further undertook “to introduce amendments to the Criminal Code in substance in accordance with the draft attached hereto as Schedule A, which amendments shall be subject to consultation with the Provincial Ministers responsible for the administration of Justice...”(9)

Schedule A to the 1985 Lotteries Agreement clearly indicates that the territorial restrictions set forth in what is now section 207 applicable to the conduct, management, and operation of gaming and betting in Canada were only intended to operate within Canada. They were enacted in order to prevent lottery schemes conducted and managed in one province from “poaching” on the markets of other provinces, with no intention to prohibit entering markets outside of Canada.(10) Schedule A to the 1985 Lotteries Agreement also indicates that Parliament intended s-s. 207(1)(h) of the Code to apply to permit Canadians to conduct and manage lottery schemes in foreign jurisdictions where such activity is lawful. The exemption was not restricted to permitting Canadians to supply materials for use in lottery schemes conducted and managed by other persons in such jurisdictions.

As well, an interpretation of s-s. 207(1)(h) that permits the conduct and management of lottery schemes from Canada that sell gaming privileges to customers in jurisdictions that consider the sale and purchase of such gaming privileges to be lawful would comply with basic principles of the extraterritorial application of Canadian criminal law. Canadian law may not validly criminalize actions that take place in Canada, and whose effect is felt solely outside Canada, where that external effect is lawful in the jurisdiction where it is felt.

The seminal case governing the extraterritorial application of Canadian criminal law is R. v. Libman(11) (“Libman”). In Libman, the Supreme Court of Canada clearly indicated that the extension of Canadian criminal jurisdiction is justifiable only where a “transnational offence” is committed. A transnational offence involves circumstances where “the same criminal act may...be subject to prosecution in more than one country.”(12) The Court canvassed a number of English decisions on the extraterritorial application of criminal law, and identified the unifying factor among these decisions as being that in each case, “it might be possible to charge an accused in two different countries” and “there may be sufficient links to different jurisdictions to justify proceedings in more than one place.”(13) The Court in Libman referred to the effects upon the foreign populace as being “wrongs” and the foreign population as victims of actions commenced in Canada.

Where a lottery scheme creates no “wrongs” or “victims” either inside or outside Canada, there is no “transnational offence” and no prosecution under the Code is supportable. The Canadian- based operation would be a lawful seller of gaming privileges according to the laws of the jurisdiction where the gaming privileges are being purchased. No persons in Canada would be customers of the operation. There is no precedent for extending the jurisdiction of the Code to such a situation, and accordingly such an extension is not supportable under the principles set forth in Libman. In that light, s-s. 207(1)(h) of the Code should be seen as a codification of a common law principle, expressly setting forth circumstances where the gaming and betting provisions of the Code will not be applied extraterritorially in order to provide certainty.

Whether justified by the exemption in s-s. 207(1)(h) of the Code, or general principles of Canadian criminal law, the conclusion holds true. The gaming prohibitions in the Code are not applicable to a seller of gaming privileges that only accepts customers from jurisdictions that consider it lawful for persons in their territories to purchase of such gaming privileges. CGL

By Michael D. Lipton, Q.C and Kevin J. Weber with Dickinson Wright LLP in Toronto. 

1. (1998), 132 C.C.C. (3d) 180, 1998 CarswellOnt 3952 (Ont. Ct. of J.); affirmed, (2003), 174 C.C.C. (3d) 385 (Ont. C.A.).
2. (2002), 215 D.L.R. (4th) 656 (P.E.I. C.A.); affirmed [2003] 1 S.C.R. 123, 2003 SCC 10, 222 D.L.R. (4th) 383 (S.C.C.)
3. Supra note 1 at paragraph 39 (Ont. Ct. of J.).
4. Supra note 2 at paragraph 12 (P.E.I. C.A.).
5. Supra note 2 at paragraph 12 (P.E.I. C.A.).
6. Supra note 2 at 384 (S.C.C.).
7. The Supreme Court has in the past been criticized for giving “a perfunctory disposition of...important issues” by upholding a decision “substantially for the reasons” of the court of appeal. “If the Supreme Court of Canada does not fully agree with the reasons of the court below it should provide its own reasons.” Peter W. Hogg, Constitutional Law of Canada, 4th Edition (Toronto: Carswell, 1998), pp. 1082, fn. 101.
8. Canada. Federal–Provincial agreement respecting gaming and betting entered into on June 3, 1985. Referenced in: Canada. Senate. Standing Committee on Legal and Constitutional Affairs. Evidence, 38th Parl., 1st sess., Issue 3, December 1, 2004, per Senator Joyal.
9. Supra note 8, clause 1.2.
10. Supra note 8, Schedule A, section 2. This also accords with statements made by the Minister of Justice in 1969, when the original exemptions for “lottery schemes” were enacted into the Code: Canada. House of Commons. Standing Committee on Justice and Legal Affairs, Evidence and Proceedings. 28th Parl., 1st sess., March 13, 1969.
11. 1985 CarswellOnt 951, [1985] 2 S.C.R. 178, 21 D.L.R. (4th) 174 (S.C.C.).
12. Supra note 11 at paragraph 11.
13. Supra note 11 at paragraphs 18–21.

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