This past week, two sources of information became available indicating how the Canadian government will increase its regulation and oversight of virtual currencies, including bitcoin. Through a combination of legislative and regulatory changes, Parliament and the Financial Reports Analysis Centre of Canada—Canada’s financial intelligence unit—will wrap “dealers” in virtual currencies into the current money services business regime. Conceptually, this is somewhat similar to the approach taken to exchange functions by the Financial Crimes Enforcement Network in the United States. The federal government has clarified things somewhat but, at the same time, left us with many unanswered questions. We will have to wait for further regulatory guidance to see how the whole regime in Canada plays out, but I think things are looking very positive for FIU regulation of cryptocurrencies in Canada.

The Current Structure & Canada’s Economic Action Plan

FinTRAC is an independent agency that acts as Canada’s FIU to enforce the Financial Action Task Force’s 40 Recommendations. It does this primarily through the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PCMLTFA) and Regulations (the Regulations). I have previously written about FinTRAC, its FATF-mandated role, and the PCMLTFA and the Regulations. As explained in the earlier post, FinTRAC has thus far taken the view that bitcoins are not “funds” within the meaning of the PCMLTFA and the Regulations. That means that FinTRAC will not regulate many bitcoin exchange functions under the MSB rules in Canada.

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On February 11th, David George-Cosh broke the story of the release of an undated internal document produced by FinTRAC addressing the challenges of cryptocurrencies, primarily bitcoin. FinTRAC is Canada’s anti-money laundering and counter-terrorist financing watchdog. The document is a slide deck that was produced further to an Access to Information Act request. The WSJ blog post on the release is here.

A copy of the deck that was released to the public under Access to Information is here.

It’s important to remember that most of what is in this deck does not represent a normative policy position being taken by FinTRAC on cryptocurrencies. (Though note that pages 24-25 of the .pdf document fairly characterizes how FinTRAC views bitcoin vis-a-vis money services businesses under the current Proceeds of Crime (Money Laundering) and Terrorist Financing Act and Regulations.) I think the bulk of it represents an earnest and honest attempt to canvass available resources and learn about bitcoin. Many bitcoin aficionados might take issue with how some points are set out and the substance of others. However, I think it’s a decent overview and a good start at fairly covering a lot of ground. Over the coming months, we may see how FinTRAC uses this knowledge as they work with the Department of Finance to introduce anti-money laundering and anti-terrorist financing regulations for cryptocurrencies, as promised in the recent federal budget.

The Canada Revenue Agency (the Canadian equivalent of the IRS) just issued its first release on how it will treat virtual currencies for taxation purposes. There is not much new here — the CRA sent an e-mail to the CBC back in April about bitcoin taxation — and the government leaves several questions unanswered. Still, it’s an actual release from the CRA and not just a communication to a news outlet, which is helpful to those advising taxpayers. And even though the interpretation bulletins and the release do not have force of law, this communication does at least put up some signposts about the CRA’s thinking about bitcoin.

The release — styled one of the CRA’s fact sheets on “digital currency” — is available here.

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As New Jersey prepares for its next court hearing on Wednesday over its efforts to legalize sports betting, gaming officials in Canada are urging lawmakers to vote on a bill legalizing Las Vegas-style sports books.

A bill introduced almost two years ago would allow Canadians to wager on a single sporting event at a time. It’s also seen as way to draw U.S. gamblers to casinos just across the border from cities such as Detroit or Niagara Falls, N.Y.

Canada offers a sports lottery in which bettors can parlay three or more games, but single-game betting is illegal under the Canadian criminal code.

“We are like Delaware, which offers parlay cards for sports betting,” Paul Burns, vice president of public affairs with the Toronto-based Canadian Gaming Association, said in a phone interview. “Every sports bettor knows it’s not a great bet.”

Burns said legalizing sports betting would discourage Canadian bettors from wagering on National Hockey League or National Football League games offshore or with illegal bookmakers.

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Maybe you’re kinda like me (or not) and just getting into the 2013 Stanley Cup World Series of Poker? It’s a long haul, sure, but know the basics of these stories and you can feel confident about having a pretty good grasp on how the deal has gone down at the WSOP this summer, and at least won’t sound like a total poker dunce while hosting your next weekly homegame and/or podcast.

1. Chad Holloway Wins

Whoop-whoop all PokerNews-er-ati! Suck it dealers and floor staff! With Chad’s $85k win in Event #1 comes a) proof that just a few years in poker media can make a clean-cut golden boy look disheveled and scruffy … and b) inspiration for many wearing a badge to think that maybe we shouldn’t give up our on-the-felt dreams just quite yet. [ESPN]

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A news report from The Register this past Monday suggested that Canadian anti-money laundering and financial crimes regulations and disclosures will not apply to bitcoin exchanges in Canada. This was based on letters apparently received by some exchanges from the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC). I have not seen the letters, but today I confirmed this position with a spokesperson for the FinTRAC. This posture presents an exciting opportunity for bitcoin exchanges that the Financial Crimes Enforcement Network (FinCEN) recently confirmed are subject to registration, monitoring, and reporting as money services businesses and money transmitters in the United States. On the financial regulatory side, those exchanges may find a more welcoming environment north of the border. However, remember that future changes to the regulatory structure in Canada are possible.

What is FinTRAC?

FinTRAC is an independent agency of the Canadian government that reports into the federal Minister of Finance. It is Canada’s financial intelligence unit for purposes of the Financial Action Task Force’s 40 Recommendations. FinTRAC’s mandate is to facilitate the detection, deterrence, and prevention of money laundering and terrorist financing activities. FinTRAC was set up and is empowered under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PCMLTFA) and the attendant regulations, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations).

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A study by UNLV’s International Gaming Institute concluded a resort complex featuring a hotel, casino, convention space and other entertainment amenities in the heart of Toronto could stimulate the economy of Canada’s largest city.

Instead of cannibalizing the market, the complex would spur growth for any surrounding businesses.

Meanwhile, the worldwide accounting firm Ernst & Young found that Toronto could collect almost $200 million a year from a casino complex in the form of tax revenues, on top of a one-time sale or lease of city-owned land.

So it wasn’t a surprise last week that Toronto city leaders, following the public release of the two reports, decided to ask residents if they favor a casino.

It’s also no wonder that Caesars Entertainment Corp. Senior Vice President Jan Jones and MGM Resorts Senior Vice President Alan Feldman are bumping into each other more often in Toronto than on the Strip.

Nevada’s biggest casino companies view Toronto as the industry’s next major battleground.

“It’s truly a potential destination we can’t ignore,” Jones said.

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This week’s online gambling news includes stories from Canada, Australia, and the World Series of Poker in Las Vegas! we also have our interview with Professor I. Nelson Rose about his expert opinions on Black Friday! Also, J Todd makes friends wherever he goes… even at the top of the mountain!

http://www.youtube.com/watch?v=Q4kaZ7wM-ZY

Not everyone is calling it “Black Friday”. For Euros who opted out of the US in ’06 and mighta started believing that coulda been a wrong decision, it was “White Friday”.

The DOJ’s virtual handcuffing of Full Tilt and PokerStars two weeks ago not only neutered two industry giants (who made billions in North America while others sat on the sidelines), but also supposedly leveled the playing field worldwide for US-abstainers who supposedly found it harder to compete in Europe or anywhere against companies benefitting from the vast liquidity American players provided.

Thus the inaugural iGaming North America conference in Las Vegas next week is kicking off their new-era industry confab with a special session called Assessing ‘Grey Friday’ and the Expected Fallout … get it? Black + White = Gray Grey.

Should be interesting to hear from gaming industry insiders who’ve never appeared on Poker After Dark or in Day 1 chip counts speaking about “the road to regulation”, as per the theme of @iGamNA‘s shindig.

Check out the lineup here. You’ll see both Stu and I are serving on panels. @GamingCounsel‘s gonna be schoolin’ about Canada …

… while I’m a panelist for the closing session:

There’s no live-stream as far as I know, but I’ll be sure to report back as influential industry experts (and a token blogger) assess the important questions moving forward … for me probably starting with, do I need to get a tie?

Time for a blog post about taxes. How are gambling winnings in Canada generally taxed? What if you play in a poker tournament in Canada? Are those winnings taxable? Does it matter if you’re a professional poker player or not?

In each case it will depend on a factual determination of whether you are carrying on the business of being a poker player or a gambler.

Source Income

Very generally, the “income” in respect of which one is taxed in Canada is one’s “income from source” as set out in the Income Tax Act^[1] (the Canadian equivalent of the Internal Revenue Code). What is income from source? It is a productive source of revenue from an office, an employment, a property, a business, or (without limiting the generality of the foregoing) an “other source.” Income from betting or wagering isn’t from an office or employment, and it’s not conceptually like the rents, interest, royalties, or dividends that come from property. The courts in Canada have demonstrated a reluctance to extend tax liabilities to cover unenumerated sources (the “other source” referred to above) of income; it’s unlikely that any gambling activities would be included in unenumerated sources.

That leaves income from business. When one carries on business in Canada, whether as a resident or a non-resident, one is generally taxable on the profit associated with that business. So, can a gambler be carrying on the business of gambling? The answer is that it’s conceptually possible, but it’s not easy.

In order to carry on business as a gambler based on the decided cases, one has to carry on a business with a fairly high level of skill. The two most prominent cases where a person was found to be taxable on gambling winnings involved a professional golfer who made money wagering on his own performance in matches^[2] and a snooker player who hustled drunks in money games.^[3]

There is an old paragraph of the Act called “right to a prize” that provides as follows: “a taxpayer’s gain or loss from the disposition of (i) a chance to win a prize or bet, or (ii) a right to receive an amount as a prize or as winnings on a bet, in connection with a lottery scheme or a pool system of betting referred to in section 205 of the Criminal Code, is nil.”^[4] While this language appears straightforward, this paragraph is of limited assistance and raises more questions than it answers; section 205 of the Criminal Code was repealed in 1985.

Lotteries, Games of Chance & Sports Betting

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On the advice of the Prime Minister of Canada, the Governor General (the Queen’s representative in Canada) dissolved the 40th Parliament on Saturday May 26th of this year. We are now in a general election campaign. Election Day is May 2nd.

Dissolution brings to an end all business before both houses of Parliament. All government bills and private members’ bills are terminated and, to be resurrected, will need to be re-introduced in the next Parliament.

The upshot is that Joe Comartin’s bill to liberalize sports betting laws in Canada, discussed here and here, is now dead. We will have to wait and see what the membership of the House of Commons looks like after the election and whether Mr. Comartin (if re-elected) will re-introduce the measure.

As a follow-up to my post on February 14th on proposed single event sports betting changes in Canada, today I did a podcast with Sarah Kaphake Cords from Casino Enterprise Management. In the podcast, Sarah and I discuss the proposed changes the Criminal Code, the challenges facing the provincial monopolies in Canada, and some thoughts on where the debate over sports betting in Canada and the US might be headed.

You can listen to the podcast here:

(In case you can’t get the above link to work, another off-site link to the podcast is here.) Enjoy!

In Canada, placing bets on “single sporting events” (e.g., money line and straight bets) is supposed to be tightly circumscribed. Paragraph 207(4)(b) of the Criminal Code effectively excludes “bookmaking, pool selling or the making or recording of bets … on any race or fight, or on a single sport event or athletic contest” from provincial lottery offerings. That is, the provinces are generally charged with conducting and managing lottery schemes (including traditional lotteries, casino games, bingo, poker, and sports betting), but not even the provinces are allowed by the Code to offer up wagers on single sporting events or athletic contests. As a result, provincial lottery corporations in Canada offer only parlay wagers where bettors must pick, for example, two or more outcomes of their wager correctly in order to win. (Ontario Lottery and Gaming offers Pro-Line, where bettors must wager on the outcome of from 3 to 6 different matches on a parlay to win.)

Joe Comartin, Member of Parliament for Windsor-Tecumseh, has been trying to change this for awhile. Last Friday, he introduced a Private Member’s Bill to do it. The bill (C-627 – An act to amend the Criminal Code – sports betting) is short; its one paragraph provides that paragraph 207(4)(b) of the Code is deleted in its entirety. This would have the effect of removing the single event carve-out; the provinces implicitly would be able to offer single game or event bets. Comartin’s electoral district is in Windsor, Ontario, across the Canada-US border from Detroit and adjacent to the riding in which is found Caesars Windsor, one of the casino resorts in Ontario. Comartin wants to make this legislative change to attract more business from Ontario and Michigan to a major employer in Windsor.

Paragraph 207(4)(b) was first enacted as part of the 1985 amendments to the Part VII (Disorderly Houses, Gaming and Betting) provisions of the Code. While there are no decisions of the Canadian courts on paragraph 207(4)(b) with respect to sports betting, it would clearly be open to a court to infer that the prohibition on single game sports betting was to minimize the risk of match-fixing.

Bill C-627 is what’s called a “private member’s bill.” As to the House of Commons, these are measures introduced by MPs that are not ministers of the government. They don’t authorize the expenditure of public funds – only government bills can do that – and they cannot order the government to take action. They are merely “an expression of opinion by the House.” Private members’ bills must address a subject under the heads of power (or the residual power) reserved to the federal government under the Constitution Act, 1867. The time allotted to debate private members’ bills in Parliament is also restricted. Private members’ bills, as a result, don’t pass that often, although, statistically, they pass more often in a minority government setting. (The Conservative Party is currently running a minority government in the House of Commons.)

This bill likely won’t pass, but it should. It will not fix the problems with provincially-run sports betting in Canada. For example, sophisticated bettors have long complained about the poor odds on offer from the provincial monopolies, among other things. Smart gamblers are already placing bets using private offshore Internet sites, and this amendment won’t change that. Nor does this measure address the continuing tension between the provisions of the Code and what certain First Nations groups in Canada claim (convincingly) is a constitutionally-protected right to conduct and manage Internet gaming and betting.

However, Bill C-627 at least goes some way towards acknowledging that the Internet sports betting industry exists and must be having an effect on the provincial monopolies. It adds some measure of reality to the criminal law in Canada which, with each passing day, seems more anachronistic as it relates to Internet gambling.

Here’s @GamingCounsel‘s look at the important legal developments in gaming over the past ten days or so:

1. Crespo v. Online Poker – Interesting complaint filed in the US District Court for the Northern District of Illinois, Eastern Division filed on October 12^th. In a nutshell: A resident of Florida named Scott Crespo, who may or may not play poker online (there’s no indication from the complaint that he does or not), is suing residents of Illinois under an Illinois statute for money they purportedly won from other online poker players who may or may not be residents of Illinois. Oh, and Crespo apparently didn’t lose any money. He wants triple the amount of the unclaimed “losses” of others accruing to the defendants. Illinois was chosen because it’s one of a handful of states that have third party recovery statutes. As a gaming attorney I know in the US put it: We have way too many lawyers with nothing productive to do. [US District Court]

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2. Betfair IPO Numbers – The Betfair IPO seemed to hit the top end of what analysts were predicting as the company’s market capitalization. Betfair was valued at £1.4 billion on flotation. Fully £200 million was raised on the IPO. [Herald Scotland]

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3. Harrah’s IPO Imminent – More news from the public markets: Harrah’s is heading back to the public marketplace with an estimated $575 million offering. The money is likely to be used for new casino projects in Las Vegas and Ohio, not to pay down debt. We’ll have to wait and see how this offering fares, but there are definitely challenges ahead. [Wall Street Journal]

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4. Canadian I-Gaming Split – While certain provinces are keen to enter the interactive gaming market, others are throwing cold water on the idea. Ontario and Quebec have announced that they’re coming out with online offerings; British Columbia already offers an online experience at www.playnow.com. However, Nova Scotia, Newfoundland, and Prince Edward Island recently announced that they’re not comfortable with participating in Internet gambling at this point. These latter three provinces are small – PEI is the smallest province in Canada, both geographically and in terms of population – but, interestingly, they’re part of the Atlantic Lotteries Corporation, which is working with BC and Quebec on sharing liquidity on a common Internet poker platform. [Globe and Mail; CBC]

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5. IMGL Conference in Madrid – The International Masters of Gaming Law is the pre-eminent organization for gaming attorneys and other gaming experts. Their Fall conference is on from October 24^th-26^th in Madrid and, as usual, it’s an interesting lineup and series of sessions. I’ll be tweeting on different panels and speakers throughout the conference; check out my tweet stream if you’re interested. [Gaming Law Masters]

Time for some of the major legal developments in gaming over the past week, as selected by @GamingCounsel:

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1. Netherlands I-Gaming Attitudes – Probably the most interesting international story of the past week is the ruminations from the Netherlands that the new government may be interested in liberalizing the country’s Internet gambling laws. It’s not clear how far this process would go and what games or betting would be included, but a lot could happen in what has been a very restricted online market in the EU thus far. [eGaming Review]

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2. Nova Scotia Says No (That’s in Canada, Folks) – Another international piece is the recent pronouncement of the premier of Nova Scotia that that province will not pursue a government-sanctioned Internet gaming offering. Nova Scotia’s finance minister added that any estimate of the revenues associated with Internet gaming would be “a wild guess.”(That’s an interesting comment given that the province of Ontario has publicly estimated that it could turn a profit of at least C$100 million/year; many have questioned the basis for such a projection.) The CEO of the Nova Scotia Gaming Corp. (rightly) pointed out recently that Internet gambling will continue to grow whether the government is involved or not. [Globe and Mail]

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3. Betfair Move – Hot on the heels of the Betfair IPO announcement, there is speculation that Betfair may move out of the UK to a jurisdiction with a lower tax rate. William Hill and Ladbrokes recently moved to Gibraltar because they perceived that UK taxes were too high. Some are saying Betfair may make a similar play. With competition increasing among Internet gaming jurisdictions, more and more operators are paying attention to applicable taxes. [CasinoGamblingWeb]
   

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4. Station Casinos Trademark Infringement/Cybersquatting Suit – Station Casinos Inc. has sued two website operators in Federal Court in Nevada: SL Enterprises (www.vegasstationcasino.com) and Ryan Murphy (www.stationcasinos.org). If the Station marks have sufficient rights attached to them through use and/or registration, they should have a good case. This kind of thing happens in i-gaming all the time and it’s a big problem for operators; it’s tremendously time-consuming and potentially expensive to vigilantly prosecute misappropriation of property rights. [Las Vegas Sun]
   

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5. PartyGaming in Venezuela – PartyGaming plc has set up an online poker offering in Venezuela. This continues two trends: Party’s continuing march around the world into new markets and the increased interest in South America as a lucrative and growing market for interactive gaming. [Gambling Zion]