Canada: Good News for Offshore Operators?

A change in the Canadian Criminal Code could be a breakthrough for the Internet gambling industry.

The Canadian Parliament Committee on Legal and Constitutional Affairs last week debated an amendment to a bill that updates certain sections in the Criminal Code. The language in Section 202(1)(i), which addresses bookmaking and betting laws, has been updated to bring technology into the 21st century. What used to refer to transmitting betting information via telephone, telegraph, radio or post now applies to all forms of communication, including the Internet.

Under the existing Criminal Code, it is an offense to provide information on a wager, sports betting or other gambling information through the Internet -- and that applies to companies both inside and outside of Canada.

But the Senate has apparently decided that the amended section should not apply extra-territorially. In its report following the hearing, the committee said it was satisfied that the section will not have extra-territorial application.

Toronto-based lawyer Michael Lipton is of the opinion that under existing legislation, any person outside of Canada who willfully and knowingly sends a message relating to betting by way of computer to somebody in Canada runs a risk of being subject to prosecution under Section 202(1)(i), but only if there is sufficient connection between the commission of the offense and Canada.

That is, as the section currently stands, if the courts find that a company based outside of Canada is specifically targeting Canadian customers by taking bets on Canadian teams or offering prizes in Canadian dollars, for instance, that company could find itself under criminal prosecution if they ever come into the country.

"The legislation as I understood it was supposed to bring that section into the 21st century," Lipton said. "So it eliminated references to radio, telephone and express and just made it technology neutral. So, presumably, the concept was that people outside of the country would still be subject to prosecution. But what is fascinating about this is that the Senate has gone on record and has expressed that they do not think the provision should apply extra-territorially."

In other words, under the new incarnation of Section 202 (1)(i), someone from outside of Canada who willfully and knowingly sends information regarding betting into the country may no longer be subject to criminal prosecution.

On the other hand, some uncertainty may lie in a slight difference of opinion between the Senate and the courts in the matter of jurisdiction, according to Lipton.

"Just like the U.S. courts are talking jurisdiction when a company wants to do business with U.S. people, the long arm of the American law will reach out for them," he said. "And it's a similar principle in Canada, except rather than going and getting the CIA or the FBI to get on a plan and kidnap the people and bring them back to the country, we're a bit more civilized than that. If they step into the country it might be something different."

What the courts seem to be doing is agreeing with the common law, which says that if you've got sufficient connections to the country you may be subject to criminal prosecution. But the Senate seems to be saying that it doesn't relate to that section.

But in the Criminal Code, there are two other sections under which foreign companies could be prosecuted, regardless of section 202(1)(i), Lipton explained.

For instance, Section 206(1)(a) makes the advertisement of games of chance an indictable offense which carries a prison term of up to two years. And Section 202(1)(h) makes it a criminal offense to advertise or give notice of or tell anyone the results of a bet or contest.

Lipton pointed out, however, that the Senate did not make comments on either of those sections regarding whether they are applicable extra-territorially. The amendment only addressed section 202(1)(i).

So, it is possible foreign companies could be prosecuted under certain parts of the code, provided there are sufficient connectors (taking bets on Canadian teams or offering prizes in Canadian dollars), but Lipton said to this date no foreign company been prosecuted under the code.

As for citizens, Lipton said there is nothing in the Criminal Code that prohibits them from gambling online, and Lipton said he does not think it was Parliament's intention to prevent ordinary citizens from receiving e-mails.

"I have a hard time believing that Parliament intended to reach into the homes of everyone in Canada and prohibit them from receiving a message relating to betting or wagering by either telephone or computers," Lipton said. "I think what Parliament intended is that it relates to people who are in the business of betting or wagering. It doesn't mean that a person who wants to go online for entertainment and bet for money is included."

The bill received a second reading on Dec. 12. It must go through one more reading before it receives Royal Assent and becomes a permanent amendment to the Criminal Code.