Frustrations Rise Over Limited Canadian Enforcement

July 8, 2024
Canadian legal experts have said enforcement of Canada’s unregulated gambling market, including operators that have failed to convert to the regulated Ontario space, remains a low priority for authorities and that regulated operators are beginning to take notice.

Canadian legal experts have said enforcement of Canada’s unregulated gambling market, including operators that have failed to convert to the regulated Ontario space, remains a low priority for authorities and that regulated operators are beginning to take notice.

Although many operators have made the jump into the regulated market in Ontario, particularly those with gaming licenses in other jurisdictions that would be threatened if they were found to operate in what could be considered a “black” market, some remain on the unregulated fringes.

Canadian law enforcement and regulatory authorities have yet to take any significant action against unregulated operators more than two years after the launch of Ontario’s regulated iGaming market in April 2022.

Peter Czegledy, a partner with Aird & Berlis law firm, said during the recent Canadian Gaming Summit that operators make an implicit deal with a regulatory entity that includes paying taxes and subjecting themselves to regulatory scrutiny.

“Part of that deal is also yes, you're going to have to go through all that, but for the people that didn't step inside the tent like you did, there likely should be some kind of consequence,” he said. “All of the operators that we work with, that has not been missed.

“It’s been two years since the new framework is out, so I guess there is a certain kind of flavor in the room that says, okay, it’s kind of time, at the very least, shouldn’t we see some examples made of those parties who have chosen not to do the right thing now that that framework is in place, and when are you going to start doing that?”

The issue, he said, citing conversations with enforcement authorities in Ontario and other Canadian provinces, is “a lack of resources” for authorities to pursue cases, and other issues that take priority over gambling enforcement.

“They focus principally on other things,” Czegledy said. “They care about what kind of harms, who’s dying, literally I will use those words, because those are the words that they tell me, who is dying?”

“Nobody is really dying that they can see in an obvious fashion, so these issues drop down in their enforcement attention,” he added, saying that issues such as organized crime and health and safety issues, such as the opioid crisis, often take precedent.

Another issue is a natural push and pull between setting a tax rate or government commission high enough to raise revenue that could be used for enforcement, but still low enough to attract operators to join the regulated space rather than remaining unregulated, said Rob Scarpelli, managing director of HLT Advisory.

“You’re never going to deal with it unless you do enforcement, and if you look at it from a tax rate perspective, using some of that tax rate … to conduct enforcement, the lower the tax rate, the less money you have to combat or enforce the grey market,” he said. 

When it comes to gaming regulators, they tend to see the issue as a law enforcement prerogative, said Michael Lipton, senior partner at Dickinson Wright law firm.

“I have been confronted by responses from regulators when asked about their enforcement policy and the answer is simply, we don’t really have any skin in the game, and they don’t,” he said. “It’s not the regulator that has the skin in the game; it’s the law enforcement authorities.”

Lipton said one potential avenue for enforcement may be through civil actions pursued by crown lottery corporations.

“Lottery corporations have business dealings with members of the public,” he said. “If someone comes along and seeks to interfere with that particular relationship between lottery corporations and the playing public, that to me is tantamount to an interference with economic relations.”

The low enforcement priority against unregulated online gambling offerings also opens the door for other gaming verticals such as sweepstakes casinos to gain a stronger foothold.

"What happens often within this space is people will take ideas that are clearly okay and [say], let’s push it a little bit more, let’s see how far we can push it,” said Jack Tadman, a lawyer with Toronto-based GME Law.

“We’re not even addressing iGaming,” he added. “Until authorities take a position, it’s hard to imagine that they would take a position on softer forms unless the fruit was so low-hanging that they bumped into it.”

Operators have similar frustrations regarding the evolution of sweepstakes gaming, which Kevin Weber, a partner at Dickinson Wright, cited as key to actions taken by Michigan regulators to push back against sweepstakes operators.

“The incentive there came from casino operators, that’s whose ox is being gored here,” Weber said. 

“As this activity becomes to look more and more like what exists in the regulated gambling sphere. Quite justifiably, people who have gone through the entire process of becoming regulated gambling operators are saying what are these guys doing, without having to put their directors through this proctological examination of their finances,” he continued.

“Nobody knows what this man does, no one knows who this guy is, and he’s allowed to offer a gambling service in the state.”

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