British Columbian Gaming Study Looks at Internet Gaming

8 February 1999

Reporting to the Minister of Employment and Investment in the Canadian province of British Columbia, the Gaming Policy Secretariat has developed a White Paper on Gaming Legislation and Regulation (released February 2, 1999). The section on internet gaming gives a round-up of how the issue is being dealt with around the world and clearly outlines the challenges of both prohibition as well as regulation. They recommend the establishment of a federal/provincial working group to explore the social and economic implication of internet gaming in Canada as well as to look at the problems of law enforcement in cyberspace.

While you can find the full 452 page tome online, IGN has scouted through the document to find the pertinent comments about internet gaming (Section 9.5 on pages 246-256). Attached is the narrative for that part of the document. The full document may be found at:

Internet Gaming

The Internet originated in 1969, when the United States Department of Defense developed a sophisticated network of interconnected computers to facilitate communication between universities conducting defence research, defence contractors and the military. The Internet has developed into "a unique and wholly new medium of worldwide human communication", and exists today as a readily accessible and unregulated network of networks connecting tens of millions of users and facilitating information exchanges, business transactions and, more recently, gaming.

Internet gaming essentially involves on-line wagering using a personal computer and a modem. The first on-line casino appeared in 1995 but Internet gaming only really emerged in 1997. Since then the growth of on-line gaming has been phenomenal. Today, there are several hundred World Wide Web sites offering highly sophisticated audio/video gaming, and that figure is increasing rapidly. Players can access virtual casinos anywhere in the world, where they may bet on simulated card and dice games, slot games, sports, lottery products, scratch cards and bingo. The Internet has globalized the gaming industry. Although not all gaming Web sites are alike, typically prospective gamblers must set up an on-line account with the Web site operator in order to access the gaming products offered on a particular site. As part of the on-line registration process, prospective gamblers must first agree to abide by the rules and regulations governing gaming on the operator's Web site, in a sort of "virtual contract". The rules and regulations usually stipulate:

  • play objectives;
  • payouts and odds;
  • eligibility for participation (such as minimum age restrictions);
  • access codes for participation;
  • limitations of the operator's liability;
  • term and termination of the agreement;
  • operator warranties; and
  • a warning that the game is subject to all applicable laws and is void where prohibited by law.

Once the prospective gambler clicks the appropriate button in agreement, an account is opened with the operator and all the on-line user requires to gamble in the comfort of his or her own home is a credit or ATM card.

According to industry insiders, the economics of Internet gaming are excellent. There are costs associated with developing and staffing a sophisticated virtual casino, but they are insignificant compared to the costs of building and staffing a bricks and mortar casino. Licences to operate Internet casinos are relatively easily obtained in jurisdictions in which Internet gaming is legal. Reports indicating that some Internet casinos have received over seven million Web site visits in a single month demonstrate that on-line casino operators have succeeded in replicating the experience of traditional casinos.

It is estimated that as many as 40 million people worldwide now have access to the Internet and that number is expected to reach 200 million by 1999.

It is also estimated that in 1997 alone, Internet gaming generated approximately US $300 million in revenues. Revenues are forecast to hit US $2.3 billion by the year 2001.

Gaming throughout the world is typically regulated by national, state or provincial legislatures or local municipalities. In many jurisdictions gaming is highly regulated or even prohibited, while in others it is considered acceptable and is subject to no government interference. Similarly, government responses to Internet gaming range from participation to prohibition. A number of countries have no clear policy on the issue.

United States

Gaming in the United States is regulated within each state. Most states prohibit gaming except for certain permitted activities. A number of states have attempted to regulate Internet gaming by applying the federal interstate wire legislation, which prohibits gambling over interstate phone lines. For example, the Attorney General of Minnesota filed an out-of-state lawsuit against an Internet Web site operator on the basis of false and misleading advertising displayed on its Web page. Since convictions can be secured under existing legislation, American courts have thus far sidestepped the difficult legal issues involved in further regulating Internet gaming. As a result, the larger issue of Internet gaming remains unresolved.

Congress has established the National Gambling Impact Study Commission, which is charged with reviewing the effects of gambling, including Internet gambling, on American society. The commission's report is due in 1999. In addition, the National Association of Attorneys General has formed an Internet Working Group to consider jurisdictional issues posed by the Internet and the possibility of criminalizing Internet gaming.

In 1997, Senator Jon Kyl (R-Ariz.) sponsored a bill known as The Internet Gambling Prohibition Act, which would have amended the federal interstate wire legislation to prohibit any gaming via electronic transmission. On October 21, 1998, it was announced that the House and Senate would adjourn without adopting the bill, amid criticism that it was intrusive and would create barriers to future Internet commerce.


Most European states take the position that gaming is most appropriately governed by the law of the individual state. Some jurisdictions allow Internet gaming within their own borders, and there is Internet gaming between jurisdictions having reciprocal arrangements (for example Norway and Finland). Some smaller countries, such as Liechtenstein, license Internet gaming without territorial restrictions, whereas other jurisdictions have moved toward banning Internet gaming altogether. In 1991 the European Commission examined the issue of gaming generally and decided not to impose a gaming regulation on the European Union as a whole.

On May 15, 1998 the Gaming Regulators European Forum recognized that, in light of the individual social, cultural and economic circumstances of the various states in the European Union, the regulation of Internet gaming would be most appropriately implemented at the national or autonomous regional level. It was recommended that, in jurisdictions allowing Internet gaming:

  • providers of Internet gaming be subject to the same level of investigation as traditional operators;
  • licensed Internet operators be required to establish operations within the jurisdiction to enable policing and control; and
  • Internet gaming be restricted to residents within the boundaries of the licensing jurisdiction, except to the extent that reciprocal arrangements are established with other jurisdictions.

The above recommendations have not been formally implemented, as the European Union has not yet adopted a unified approach to Internet gaming.


Queensland and the Australian Capital Territory have introduced legislation regulating Internet gaming. The primary purpose of the legislation is to provide a secure regulatory environment for participants in on-line gambling. The Act:

  • prohibits advertising of on-line gaming sites;
  • requires that all players be registered (subject to providing proof of age, identity and residence);
  • provides for licensing of on-line gaming service providers in respect of specific gaming products;
  • provides for disciplinary action in respect of breach of licence, investigations of licensees, and suspension and cancellation of a licence;
  • provides for licensing of key personnel of the licensee;
  • allows for recognition of gaming service providers in reciprocal jurisdictions;
  • provides for the remittance of fees and taxes to the government;
  • provides for the evaluation and approval of regulated equipment; and
  • includes a list of gambling offences including forgery, bribery and cheating.

Each minister responsible for gaming authorizes the conduct of Internet games within his or her jurisdiction. Unauthorized games are prohibited under the legislation, and the minister retains the power to prohibit the conduct of an authorized game in another participating jurisdiction.


Gaming is prohibited under the Criminal Code of Canada subject to certain exceptions. Section 207(1) of the Code provides that it is lawful for a provincial government, a licensed charity, or a licensed board of a fair or exhibition to conduct lottery schemes as defined in the Code.

Pursuant to s. 207(4)(c) of the Code, the provincial government has the exclusive jurisdiction to manage lottery schemes that are operated on or through a computer, video device or slot machine (machine gaming). Since the Code does not restrict the medium through which provincial governments may offer machine gaming, it has been suggested that s. 207(4)(c) permits the province to offer Internet lottery schemes. To date, no province has expanded its gaming operations to include the conduct and management of lottery schemes via the Internet.

The federal Justice Department takes the position that the Code prohibits all Internet lottery schemes offered other than under a province's machine gaming authority.

On February 9, 1998, the Federal Court of Canada upheld a decision of the Executive Director of the Canadian Pari-Mutuel Agency denying the Ontario Jockey Club's request that its pari-mutuel betting permit be amended to enable it to accept wagers via the Internet. The court indicated that what was required was not only a permit, but also the approval by the Canadian Pari-Mutuel Agency of the systems and facilities proposed to be used to provide on-line pari-mutuel betting. The court did not consider the broader issue of Internet gaming in its reasons for dismissing the application, and the issue of Internet gaming has not otherwise been considered in the Canadian courts.

In 1996, federal Liberal MP Dennis Mills tabled a Private Member's bill (Bill C-353) 31 proposing that s. 201 of the Code be amended to allow the federal government, alone or in conjunction with one or more of the provinces, to conduct and manage Internet lottery schemes. The bill failed to reach second reading and has not been reintroduced.

Other Jurisdictions

A number of small countries, typically those regarded as tax havens, are issuing on-line licences for Internet gaming activities directed at the international market. Obtaining such a licence usually requires payment of a one-time fee and is subject to no further government intervention or regulation. Although a licence may be issued in one country to the Internet service provider, often the gaming operator is based in another jurisdiction, which bans such activity. Many countries have adopted a "wait and see" approach, preferring to observe the regulatory models employed in other jurisdictions before deciding whether to ban or regulate Internet gaming in their own.

Cyberspace is not without laws, but enforcement is often virtually impossible. Industry Canada commissioned a study of liability issues in respect of content circulating on the Internet and the adequacy of existing laws. The report, released in February 1997, concluded that existing laws, with some minimal changes, are adequate to handle Internet activities. Prohibited activities carried out on-line include the distribution of obscene materials, child pornography and hate propaganda, as well as copyright and trademark infringements. Persons possessing and distributing child pornography over the Internet have been convicted in Canada.

One of the most significant challenges in applying the Code provisions in respect of Internet gaming is establishing territorial jurisdiction. In considering the limits of territoriality in a case involving criminal fraud, the Supreme Court of Canada set out the following test:

[A]ll that is necessary to make an offence subject to the jurisdiction of our courts is that a significant portion of the activities constituting that offence took place in Canada. As it is put in modern academics, it is sufficient that there be a "real and substantial link" between an offence and this country, a test well known in public and private international law....

In his paper, Internet Gaming Law in Canada, Mitchell Garber states:

[I]t is clear that by [sic] hosting a gaming site from within Canada through a Canadian-based server, a Canadian-based presence provider, and further substantial connection to Canada, for example, the gaming contracts concluded in Canada, and money paid out of accounts located in Canada, would likely be in contravention of existing Canadian criminal law.

The issue of jurisdiction becomes more complex where a licensed offshore Internet operator takes bets from Canadians. The question is whether Internet-based gaming operators have a "real and substantial" connection with any jurisdiction from which bets are placed. Where the Internet-based gaming operator is operating entirely offshore (i.e. where all contracts are concluded offshore, all banking arrangements are carried out offshore and the Internet service provider is located offshore), it is unlikely that Canadian courts will be able exert jurisdiction over the operator.

Some American states have aggressively tested the boundaries of jurisdiction in the context of cyberspace gaming. Most judicial decisions in the U.S. suggest that mere access to a Web site, without some further connection, is not sufficient to establish jurisdiction at law.

Even in cases where the jurisdictional test can be met, whether a government can enforce its laws will depend upon whether it can effectively subject the person in question to criminal proceedings, which it can do only if the person is physically present. Often, the only way to secure the physical presence of a person who is attempting to thwart Canada's laws offshore is through extradition. The federal government has entered into bilateral extradition treaties with a number of countries to facilitate that process, but otherwise the difficulties and costs associated with extradition are often thought to be insurmountable.

The enforcement of Code offences related to Internet gaming is complicated by the fact that evidence relating to such offences is typically located offshore. Unlike the case with child pornography, Internet gamblers do not typically download or store information. In addition, it is unlikely that Internet gaming would be regarded as a serious crime warranting invasive enforcement procedures such as residential wiretaps.

Worldwide Internet access to gaming may undermine local laws that prohibit or regulate gaming, and may also exacerbate the mischief at which those laws are directed. Some of the social implications of Internet gaming are:

  • Difficulty Enforcing Minimum Age Restrictions: the anonymity inherent in computer gaming makes it virtually impossible to enforce existing minimum age restrictions established to protect minors;
  • Addiction: scholarly research data indicates that gambling addiction, and in particular gambling addiction among minors and users of video lottery games, is increasing at an alarming rate. Studies suggest that problem gamblers become quickly addicted to video gambling because of its "instant feedback mechanism", and video gambling has been termed the "crack-cocaine of gambling";
  • Crime: studies indicate that the incidence of criminal activity increases significantly with gaming. Compulsive gamblers engage in insurance related fraud, theft, domestic violence, break and enter, assault and other crimes, resulting in increased social costs for law enforcement and health care;
  • Integrity of Games and Operators: in an unregulated environment it is virtually impossible to ensure the integrity of on-line games or the integrity and solvency of the operators offering such games; and
  • Internet Security: Computer hackers who access a Web site may also access credit card information.

Other implications include increased costs of employment (as a result of lost productivity), law enforcement, health care and addiction programs.

Attempts to regulate Internet communication through the application of traditional laws are often ineffective. Approaches to Internet regulation may include:

  • placing electronic filters or firewalls along Internet pathways to prohibit access to gaming Web sites;
  • holding Internet service providers accountable for the content to which they provide access, by requiring that they be licensed and their sites be subject to content restrictions;
  • requiring that on-line subscribers register with the Internet service provider and that the Internet service provider keep records of the on-line activities of its subscribers;
  • requiring that Internet service providers monitor and block the transmission of illegal gambling materials sent to or from their subscribers;
  • developing an international cooperation imposing "know your customer" legislation in countries licensing Internet gaming, requiring that Internet service providers determine the origin of on-line wagers and do not accept wagers placed from jurisdictions in which Internet gaming is unlawful;
  • establishing government lists of prohibited Web sites and imposing annual liability on Internet service providers that service such sites;
  • government monitoring of all communications with Internet service providers; and
  • developing an international treaty or protocol on Internet gaming enabling the extradition of Web site operators, Internet service providers and others providing access to Internet gaming for persons in jurisdictions where Internet gaming is prohibited, and imposing uniform consumer protection standards to ensure the integrity of those providing access to Internet gaming and of the games provided.

The above points highlight some of the alternative approaches to regulating Internet gaming. It is unlikely, however, that any of them would be successful or practical. Technological restrictions may be bypassed by new technology, treaties require the cooperation of the international community, and placing strict requirements on Internet service providers may be unrealistically onerous from a business perspective.

To date Canada has adopted a passive approach to the development of Internet gaming, preferring to wait until the international legal landscape is settled. The legalization of Internet gaming in some jurisdictions has made it virtually impossible to contain the spread of on-line gaming. Absent a global convention banning Internet gaming or technology preventing access to gaming Web sites, any government regulation of Internet gaming will be effective only temporarily and locally.

The political and social implications of Internet gaming and the rapid growth of Internet access in an unregulated environment together suggest that the federal government, in conjunction with the provinces, should consider developing guidelines governing on-line gaming and encompassing clearly defined enforcement strategies for Canada.

It is recommended that the Attorney General of British Columbia, along with his federal and provincial counterparts, assemble a working group to study:

  • the social and economic implications of Internet gaming in Canada; and
  • the problems of law enforcement in cyberspace.