Canada: Changes To Canada’s AML Law Target Online Casinos

On 11 February 2014, Canada's Minister of Finance introduced the 2014 federal budget, which, inter alia, addressed Canada's antimoney laundering and antiterrorist financing regime. In particular, the Minister stated that the application of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the 'Act') would be broadened to apply to online casinos. The stated rationale behind the proposed amendments was to strengthen Canada's anti-money laundering and anti-terrorist financing regime to improve Canada's compliance with international standards while at the same time minimising compliance burdens.

On 28 March 2014, Bill C-31, the Economic Action Plan 2014 Act, No. 1 was introduced as an Act to implement certain provisions of the budget tabled in Parliament on 11 February 2014 and Other Measures ('Bill C-31'). Bill C-31 introduced the proposed amendments to the Act1.

The amendments: overview

Proposed amendments to the Act include:

  • Inclusion of persons/entities engaged in the business of dealing in virtual currencies2 within the scope of the Act;
  • Inclusion of money service businesses and persons/entities engaged in the business of dealing in virtual currencies, that do not have a place of business in Canada but that provide services to customers in Canada, within the scope of the Act;
  • Inclusion of online casinos within the scope of the Act (discussed further below);
  • Expansion of the application of the enhanced due diligence requirements (in other words, the screening) applicable to politically exposed persons who hold prominent public positions (either within Canada/internationally) that are specified within the Act;
  • Expanded information sharing requirements, in the form of policies/procedures related to the exchange of information between certain reporting entities3 and their affiliates4 (including both domestic/foreign affiliates), for the purpose of detecting/deterring money laundering offences or terrorist activity financing offences or for the purpose of assessing the risk of such an offence;
  • Introduction of a discretionary power on the part of the Minister of Finance to issue written directives which require reporting entities under the Act to comply with certain requests pertaining to transactions that are originating from or bound for any foreign state/entity, for the purpose of safeguarding the integrity of Canada's financial system; and
  • Other amendments including changes to the Financial Transactions and Reports Analysis Centre of Canada's (FINTRAC's) obligations and powers under the Act and the introduction of a new obligation to report to the Canada Revenue Agency certain international electronic funds transfers with a value of CAD $10,000 or more.

Given that online casinos are subject to the Act, operators of online casinos will need to familiarise themselves with the additional requirements/obligations proposed in the above mentioned amendments.

The application of the Act to online casinos

Currently, section 5(k) of the Act states that the Act applies to 'casinos, as defined in the regulations, including those owned or controlled by Her Majesty.' Section 1.1 of the applicable regulation5 defines casinos as follows: '"casino" means a person or entity that is licensed, registered, permitted or otherwise authorized to do business under any of paragraphs 207(1)(a) to (g) of the Criminal Code and that conducts its business activities in a permanent establishment (a) that the person or entity holds out to be a casino and in which roulette or card games are carried on; or (b) where there is a slot machine, which, for the purposes of this definition, does not include a video lottery terminal.

It does not include a person or entity that is a registered charity as defined in subsection 248(1) of the Income Tax Act and is licensed, registered, permitted or otherwise authorized to carry on business temporarily for charitable purposes, if the business is carried out in the establishment of the casino for not more than two consecutive days at a time under the supervision of the casino.'

The proposed amendments replace section 5(k) and add subsections (k.1), (k.2) and (k.3), all of which pertain to casinos, including online casinos. The pertinent sections read as follows:

'5. This Part applies to the following persons and entities:...

(k) the government of a province that, in accordance with paragraph 207(1)(a) of the Criminal Code, (i) in a permanent establishment that is held out to be a casino, conducts and manages a lottery scheme that includes games of roulette or card games, or (ii) in any other permanent establishment, conducts and manages games that are operated on or through a slot machine, as defined in subsection 198(3) of the Criminal Code, or any other similar electronic gaming device, if there are more than 50 of those machines or other devices in the establishment;

(k.1) the government of a province that, in accordance with paragraph 207(1)(a) of the Criminal Code, conducts and manages a lottery scheme, other than bingo or the sale of lottery tickets, that is accessible to the public through the Internet or other digital network, except if the network is an internal network within an establishment described in subparagraph (k)(ii);

(k.2) an organization that, in accordance with paragraph 207(1)(b) of the Criminal Code, in a permanent establishment that is held out to be a casino, conducts and manages a lottery scheme that includes games of roulette or card games, unless the organization is a registered charity, as defined in subsection 248(1) of the Income Tax Act, and the lottery scheme is conducted or managed for a period of not more than two consecutive days at a time;

(k.3) the board of a fair or of an exhibition, or the operator of a concession leased by such a board, that, in accordance with paragraph 207(1)(c) of the Criminal Code, in a permanent establishment that is held out to be a casino, conducts and manages a lottery scheme that includes games of roulette or card games.'

As can be seen from the above, section 5(k.1) addresses the application of the Act to online casinos that are provided by provincial governments but does not address online gaming sites operated by companies that provide services directly to Canadian residents.

Further, the proposed revised definition of 'casino' no longer refers to subsections (d)-(g) of section 207(1) of the Criminal Code6 and instead focuses on subsections (a)-(c) of section 207(1). As such, all gaming operators should closely review the proposed amendments pertaining to the application of the Act to confirm whether the Act applies to them.

Implications for online Casinos

The proposed amendments will result in the above referenced online casinos becoming 'reporting entities' under the Act. As such, they will be required to be registered by FINTRAC and comply with the reporting requirements under the Act, just as is required by their in-person casino counterparts. These requirements involve the monitoring and reporting of suspicious transactions, as well as 'business relationships' with clients, and the implementation of compliance regimes containing mandated measures to mitigate risk. The result will be increased costs for these online gaming operations in order to implement risk-based documentation, procedures, policies and training required to be compliant with the Act.

Notably, the proposed amendments pertaining to online gaming apply specifically to provincial lottery operations (i.e., PlayOLG.ca), and so are not presently applicable to private offshore online gaming sites that provide services to Canadian residents. Given that the amendments expand the application of the Act to offshore money service businesses and virtual currency businesses that provide services to residents of Canada, it will be interesting to see whether the application of the Act is further expanded in the future to include offshore gaming sites too7.

Finally, note that Bill C-31 is not yet the law. As of the date of this publication, the report by the Standing Committee on Finance was presented in the House of Commons with respect to Bill C- 31. Further amendments may be proposed and debated prior to Bill C-31 receiving royal assent.

Footnotes

1. The amendments pertaining to the Act are found under Division 19 of Bill C-31.

2. 'Virtual currencies' will be defined in the regulations which have not yet been provided. It is assumed that the term 'virtual currencies' will include Bitcoin, as Bitcoin was specifically mentioned as an example in the 2014 budget tabled by the Federal Government of Canada.

3. Including banks, cooperative credit societies, savings and credit unions and caisses populaires, life companies to which the Insurance Companies Act applies, companies to which the Trust and Loan Companies Act applies, trust and loan companies regulated by provincial Acts and securities dealers.

4. 'Affiliate,' for the purposes of the Act, is defined to include an entity that is wholly owned by the other (parent - subsidiary relationship), two entities that are wholly owned by the same entity (two subsidiaries of a parent company) or entities that have financial statements that are consolidated.

5. Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, SOR/2002-184.

6. The Criminal Code (Canada) defines what types of gaming activities are illegal/legal in Canada and assigns the provinces responsibility to operate/license/regulate forms of gambling that are legal. Part VII of the Criminal Code generally prohibits gaming, however section 207 sets out exceptions to the prohibition.

7. It is theoretically possible for the definition of 'virtual currencies' to bring within its scope a number of online gaming operations. As a result, such offshore gaming operations providing services to customers in Canada would be subject to the Act.

Originally published in World Online Gambling Law Report - June 2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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