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Mar
10th

Don’t Make the Same Mistake Canada!

Since the passage of the ill advised Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) with all its unintended consequences and regulatory confusion, one would wonder why any other country in its right mind would want to pass similar legislation. This week the Canadian government announced it was considering legislation that would restrict banks and credit card companies from processing transactions from internet gambling websites.

UIGEA in the United States has been less than a resounding success and one wonders just what the Canadian sponsors of such legislation are thinking. Historically, the Canadian government has opted for regulation rather than prohibition unlike their neighbors to the south.

According to Michael Lipton, a gaming law expert and senior partner at the law firm of Elkind & Lipton in Toronto, “History demonstrates that over the past 50 or 60 years the trend in [Canada] is to regulate, not prohibit,” says Lipton. “It happened with horse racing about five years ago. It happened with land-based casinos in 1969 and then it happened again about seven years ago when those casinos were allowed to start offering craps so they could compete with the border casinos. If the public wants something regulated, and the regulation benefits the country, it usually happens.”

Regulation, not prohibition, has been beneficial for the Canadian government in several ways. The most obvious would be the revenue generated by the many land based casinos, especially those located close to the US border. Those who cross the border to gamble also spend a considerable amount of money at other Canadian businesses. Online gambling in Canada remains virtually untaxed and it is this factor that has led some to call for a ban on online gambling.

Over 400 online gambling sites are licensed by and operate from the Kahnawake Mohawk Territory which is considered by the Mohawks to be a sovereign nation. The Canadian government in Ottawa considers these sites to be illegal but the Mohawks contend that Canadian law does not apply to them since they are a sovereign nation. The legality of these licenses has never been challenged in a courtroom and the law remains vague.

Unfortunately, this dispute has led some in the government to call for a ban on online gambling. The horse racing industry, which is heavily taxed, is exerting enormous pressure on the government to shut down the Mohawk’s online gaming operations. The Canadian horse racing industry pays approximately 1 billion dollars a year in taxes while the Mohawks pay nothing. Woodbine Entertainment which has a monopoly on government sanctioned online horse betting is exerting tremendous pressure on Parliament to preserve their monopoly.

Hopefully both sides can work together on mutually beneficial legislation and avoid the disaster that occurred in the US with the passage of UIGEA. Chuck Barnett of Mohawk Internet Technologies has suggested legislation that,”could serve as the catalyst for a potential source of economic development, employment and revenue through taxation.” Quite simply the Mohawks would continue to offer online gambling but would pay taxes to the Government even though the Mohawks do not recognize the governments’ jurisdiction.

The Canadian government has seen what a nightmare UIGEA has been in the US and has no desire for a similar experience. The US law was passed in 2006 and has been almost impossible to implement due to vague regulations and unfunded mandates on banks and credit card companies. The US government has lost billions in potential tax revenue because of UIGEA and it is hoped that the Canadian government will not make the same mistake.

Canadians are usually more amenable to regulation than their American counterparts but both countries have long traditions of respecting individual liberty and privacy. The rights of individual choice and the right to privacy are jealously guarded in both the US and Canada. At least Canada is not pretending to ‘protect public morals’ as did the sponsors of UIGEA. This is simply a dispute between competing business interests trying to use government to further their individual agendas. Hopefully the Canadian government will not go down the same path as the US and can resolve this dispute with sane legislation.