Friday, March 2, 2012

Bodog & The Legality of Online Gaming

A federal grand jury in the United States has indicted four Canadians who operated the online gaming business Bodog accusing the company of conducting an illegal sports gambling business and conspiring to commit money laundering. The founder of the online gaming site Bodog, Calvin Ayre, along with website operators James Philip, David Ferguson and Derrick Maloney, have also had arrests warrants issued against them.

According to the indictment, an undercover Immigrations and Customs Enforcement agent opened an account in June 2009 and made sports bets on, most recently in January 2012. The agent received winnings by check and cash.

Bodog operates in the U.K., Europe and Asia and say it has “never taken bets from the US”.

Ayre and his web operators are now fugitives under U.S. law.

Here’s what you need to know.

Bodog Not Alone

The U.S. government started this off earlier this year by doing 2 things:

(1) The U.S. pressed criminal charges against the owners of a number of online gambling sites, including Full Tilt Poker and PokerStars alleging that these businesses had engaged in criminal activity contrary to U.S. law. The owners have been indicted. An indictment is a formal accusation that a person has committed a crime.

(2) The U.S. government also filed civil suits against a number of online gambling sites, including Full Tilt Poker, Pokerstars, Absolute Poker and Ultimate Bet. The government alleged that the sites “engaged in the operation of an unlawful gambling business, bank fraud, wire fraud, and money laundering”. In a civil suit, you sue for money (generally), while criminal involves jail.

Online Gaming: Big Big Business

Online gambling is a multi-billion dollar business. Some estimates value the online gambling business at about $30 billion dollars, and it will grow to $177 billion by 2015.

The Legality of Online Gambling in the U.S.

On September 29, 2006, the U.S. passed a law call the Unlawful Internet Gambling Enforcement Act. 

The law does not outlaw online gambling. However, it does make it illegal for financial institutions, such as banks and credit card companies, to transfer funds to online gambling sites. That’s the important point here.

This was a huge problem for online gaming sites because they would transfer funds between customers and their sites by using financial institutions. So this law effectively cut out a major market for these businesses. They were not happy.

The Legality of Online Gambling in the U.K.

It’s legal and taxed. Everyone is happy. Hugh Grant, however, remains pensive, self-deprecating and charming in a clumsy way.

The Legality of Online Gambling in Canada

The operation of an unlicensed or unlawful gambling is an indictable offence in Canada – and that includes online gambling. 

This is covered by the Canadian Criminal Code. To conduct legal gambling and betting in Canada, a valid license must be obtained from the provincial government. Right now, only the provincial governments can run online gaming operations. As well, they can’t issue licenses to third parties to run online gaming sites.

So in cases of gaming businesses located in Canada, it’s easy to say that they are breaking the law.

But there is a bit of a wrinkle with Bodog and company. Remember that these sites are virtual in nature and are not your traditional casino or bricks and mortar gaming business with a physical location in Canada. 

They can be located in the U.K. or Malta and servers in the Caribbean? An online gaming business doesn’t need to be in Canada to be accessed by Canadians.

So here's the wrinkle: Canada may not be able to establish a sufficient connection between an online gaming site in the UK (for example) and Canada such that it can pursue criminal charges against that site.

Put another way. without a sufficient connection, it’s tough to rely on the Criminal Code to ban online gaming. 

Even with a connection, it can still be a challenge to figure out specifically how the Criminal Code applies to online gaming.

Elsewhere in Canada, the Kahnawake Mohawk Nation in Quebec has been running an online casino since 1999, and generates about $2 million a year in profit. The Attorney General, however, has called the operation illegal. Still, though, no legal action has been taken against the Nation. Cue more grey area.

And that's why is still active.

Tough To Get U.S Hands On These Guys

A lot of the owners of these businesses are outside the reach of the U.S. government. For example, the owner of PokerStars, Isai Scheinberg, lives on the Isle of Man located in the Irish Sea. The island is 52 kilometres long. He’s outside the U.S. jurisdiction's reach. So for now, he’s a fugitive.

Canada won’t extradite these guys as well. So that means that as long as these guys don’t travel through the U.S. they are fine.

So when it comes to online gaming, all bets are off.

That's the best pun I could come up with to end this article.


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Andi Muise said...

canadian online casinos is legal and taxed. Everyone is happy. Hugh Grant, however, remains pensive, self-deprecating and charming in a clumsy way.