Developments in Online Gambling in Canada: The Conviction of Cyber World Group and Jurisdiction of the Kahnawá:ke Gaming Commission

World Online Gambling Law Report - December 11, 2007

In a prosecution that was kept very quiet by Quebec authorities, 3370861 Canada Inc., also known as Cyber World Group was charged on January 25, 2007 with two counts under the Criminal Code (the "Code") in connection with its activities conducting the business of GoldenPalace.com through a server located on the Kahnawá:ke Mohawk reserve. Cyber World Group pleaded guilty to these charges on September 26, 2007, and paid a C$2 million fine. The fact of the prosecution and the conviction was not publicized by the Quebec police (the "Sûreté du Québec"), the Quebec government, the Kahnawá:ke Mohawks, the Kahnawá:ke Gaming Commission (the "KGC"), Cyber World Group, or GoldenPalace.com. The prosecution only became public knowledge two months after the conviction, through a story broadcast by the Canadian Broadcasting Service on November 29, 2007.

What is notable in this matter is what did not happen. Though the charges referred to "virtual casinos and computers" kept and operated in Kahnawá:ke, the Sûreté du Québec did not collect the evidence to support those charges by conducting a raid on the Kahnawá:ke Mohawk reserve. Rather, the charges came about after a raid at the offices of Cyber World Group, in the Ville St. Laurent District of Montreal, which took place over a year ago. These offices are nowhere in the vicinity of the Kahnawá:ke Mohawk reserve. No charges were laid against any person or entity residing on the Kahnawá:ke Mohawk reserve.

The Quebec government and the Sûreté du Québec have followed a "hands-off" policy with regard to gaming activities taking place on the Kahnawá:ke Mohawk reserve. The Golden Palace conviction does not appear to reflect a change to this policy. Quebec has made it clear that it has no compunction about prosecuting activities in support of online gaming which take place on Quebec territory outside of the Kahnawá:ke Mohawk reserve.

From a legal perspective, the KGC and the Mohawk Council of Kahnawá:ke continue to take the position that they have an Aboriginal right to regulate gaming on their Territory, both online and land-based, a right that is protected by ss. 35(1) of the Constitution Act, 1982. The prosecution and conviction of Cyber World Group was carefully framed in such a way as to refrain from challenging that right. Cyber World Group operated from Canadian offices outside the Kahnawá:ke Mohawk reserve. Moreover, the KGC had granted a licence to Golden Palace Ltd., not Cyber World Group. The ability of Cyber World Group to claim the benefit of the Aboriginal right protected by ss. 35(1) of the Constitution Act, 1982 was doubtful. In any event, since Cyber World Group entered a guilty plea, there was no judicial reasoning in the case relating to the claimed Aboriginal right.

Had the authorities desired to challenge the jurisdiction of the KGC or the Mohawk Council of Kahnawá:ke to grant a licence to GoldenPalace.com, they could easily have charged them with aiding and abetting Cyber World Group (contrary to ss. 202(1)(j) of the Code), or with doing things not authorized by section 207 of the Code in the conduct, management or operation of a lottery scheme (contrary to ss. 207(3)(a)).

This prosecution is not appreciably different from that carried out by the RCMP in British Columbia in 2001 against Starnet Communications. Starnet was operating pursuant to a licence granted by Antigua, but it kept computers related to that gaming operation in Vancouver. The prosecution did not challenge the validity of the Antiguan licence, but it did challenge the lawfulness of activity conducted from Canada in support of a foreign-licenced gaming operation. Cyber World Group could have been charged and convicted in the same manner as was done in 2007 if, operating from its Montreal offices, it had conducted and managed virtual casinos, and employed or knowingly allowed to be kept, exhibited or employed virtual casinos and computers for that purpose, while operating pursuant to a licence validly granted by Antigua, rather than the KGC. In both cases, the prosecution would not have involved a challenge to the validity of the licence; rather, it would be a prosecution for acts carried out on Canadian territory in support of that extra-territorial licence.

The prosecution and conviction of Cyber World Group does little or nothing to alter the legal position of the licences granted by the KGC. It does, however, reinforce the vulnerability of Canadian-based entities that operate in support of online gaming activities licensed by other jurisdictions, particularly where those licensed operations accept bets and wagers from Canadian residents. This is the case regardless of whether the entity receives a licence from an authority located on the Kahnawá:ke Mohawk reserve, Malta, Alderney or the Caribbean.

Of perhaps greater interest in relation to foreshadowing future challenges to the jurisdiction of the KGC and the Mohawk Council of Kahnawá:ke are certain comments made by senior counsel to the federal Department of Justice in the course of debate over a recent Bill. Bill C-23, later renamed Bill C-13 (and referred to collectively herein as "the Bill"), proposed changes to the Code, including changes to make a particular provision of the Code "technologically neutral." The Bill would amend ss. 202(1)(h), which presently makes it an offence to provide information intended for use in connection with book-making, pool-selling, betting or wagering using radio, telegraph, telephone, mail or express, to refer to no specific media and therefore to be applicable to all forms of telecommunication. Statements made by government representatives to the House of Commons Standing Committee on Justice and Human Rights support the analysis that it is not the legislative intent of Parliament to introduce large or substantial changes to the gaming and betting provisions of the Code by way of this Bill.

Carole Freeman, the Member of Parliament for Châteauguay—Saint-Constant, an area which includes the Kahnawá:ke Mohawk reserve, asked pointed questions which referred specifically to the "virtual casinos" located there. Her comments, and those of Ms. Anouk Desaulniers, senior counsel for the Criminal Law Policy Section of the Department of Justice, and the Honouable Rob Nicholson, the Minister of Justice, are reproduced below:

Mrs. Carole Freeman: ...My final question has to do with gambling and bets. In this bill, you add provisions regarding the use of telecommunication tools - and I understand the purpose of that - but you do not address the issue of virtual casinos. In my riding, I am fortunate enough to have the Kahnawake Indian reserve, where there are virtual casinos. It is a serious problem for us. We are all aware of it, as we are aware of other problems like tobacco and arms smuggling, which are problems from a legal standpoint. I would like to know whether this bill addresses the issue of virtual casinos.

Ms. Anouk Desaulniers: No, the bill -

Mrs. Carole Freeman: Why not?

Ms. Anouk Desaulniers: This bill proposes amendments that we consider to be technical and minor corrections to be made to the current system. That particular amendment would apply to situations involving Internet betting. The 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.

. . .

Hon. Rob Nicholson: ...In answer to Madame Freeman's question, Madame Desaulniers pointed out that 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 "other controversy" referred to by Ms. Desaulniers could be the status of the regulatory jurisdiction assumed by the KGC and the Mohawk Council of Kahnawá:ke. Ms. Desaulniers comment that this issue is one which they "are working on it at the department" of Justice might foreshadow some federal action on this front. This is particularly so when viewed in the context of later statements by the Minister of Justice, who mused that if the government chose to make "controversial or large substantial changes to the Criminal Code" concerning online betting, the appropriate way to do so would be through "a stand-alone bill." This may reveal that the government is already giving thought to the manner in which it will directly address both online gaming and the jurisdictional issues involved in the "controversy" over the KGC and the Mohawk Council of Kahnawá:ke. Alternatively, the "other controversy" could relate to the "other problems like tobacco and arms smuggling" as referred to by Mrs. Freeman. If the comments refer to online gaming, the implications on Canadian gaming law could potentially be wide-ranging. Rather than speculate, we will keep our fingers on the pulse of government and, continue to monitor the situation.

Michael D. Lipton, Q.C. is a senior partner and head of the Gaming Law section of Elkind & Lipton LLP in Toronto, and a founding member and current President of The International Masters of Gaming Law.

Kevin J. Weber is a partner and member of the Gaming Law section of Elkind & Lipton LLP.

View printable version of this page

About Us | Lawyers | Specialties | Publications | Resources | Contact Us
Home | Privacy Policy | Site Map