Fortunately, the federal government recognized the challenges posed by the current regulations in their December 2011 consultation paper:

“There is a rapidly increasing reliance on electronic means for product delivery in the financial services industry, such as through mobile phone payments in the banking sector, as well as in other sectors where services are increasingly being provided on line, such as the emergence in Canada of an on-line casino sector.”|

“Various reporting entities have identified components of the existing non-face-to-face identification requirements that limit their ability to increasingly use evolving technologies to deliver financial products and services, without requiring an individual or entity to physically submit supporting documentation (e.g., a cleared cheque). This     includes limitations with independent data sources that may currently be relied upon by credit card companies and with the requirement that a signature be provided by customers when opening an account.”

New regulations concerning online customer due diligence are expected later this year (and may even have been released by the time this article has been published).  The regulations will also establish the coming into force dates for Bill C-31.  Canada’s gaming industry should assess the impact of any new regulations to internet gaming and be prepared to make representations to the federal government if necessary.

Dual Reporting Entities

The new definition of “casino” does not clear up the issue of dual operators (reporting entities) at one casino.  To gaming patrons, a casino simply looks like a casino.  But in many cases the underlying legal arrangements may be far more complex.

For example, a charitable organization or First Nations may operate tables games in accordance with paragraph 207(1)(b) of the Criminal Code.  However, since federal law only allows a provincial government to conduct and manage electronic games, the slot machine side of the business would actually be managed by a provincial crown corporation or agency in accordance with paragraph 207(1)(a) of the Criminal Code.

Are both parties accountable for compliance?  What if a patron conducts transactions between operational areas on the gaming floor (i.e., tables and slots)?  Who is responsible for submitting reports to FINTRAC, the federal agency responsible for enforcing compliance with the Act?  These questions are not answered by the legislative amendments and will hopefully be resolved either through forthcoming regulations or guidance from FINTRAC.

Video Lottery Terminals

Video Lottery Terminals (VLTs) are no longer specifically exempt from the Act.  Establishments that have more than 50 VLTs will now be considered casinos by FINTRAC.

This amendment appears to be intended to level the playing field between VLTs and slot machines across the various provincial jurisdictions.  Previously, some gaming establishments were subject to the Act and others were not, depending on how provincial regulation treated electronic gaming machines.

Bingo Halls

The change in the treatment of VLTs raises the question as to whether bingo halls (that is, bingo halls that do not already have slot machines) could inadvertently become casinos.  The new definition of casino includes 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.”

There may be some question as to whether electronic dabbers or other automated bingo machines would be considered a “similar electronic gaming device” under the legislation.

Bingo Halls were previously exempt from AML/CTF legal requirements, so it is likely not the federal government’s policy intent to subject them to the Act.  Again, these questions will hopefully be resolved either through forthcoming regulations or guidance from FINTRAC.

Enforcement Actions

If the upcoming regulatory changes aren’t enough to contend with, there have been several recent high-profile enforcement actions taken against casino operators in the United States and Canada.  At least two provincial lottery corporations are currently in Federal Court over administrative monetary penalties issued by FINTRAC.  Last August, Sands Corporation signed a $47-million non-prosecution agreement with the U.S. Attorney’s Office over alleged AML/CTF failures at their Las Vegas and Macau casinos.  Two months later, Caesars Entertainment Corp. announced that their Caesars Palace casino was under a federal grand jury money laundering investigation.

Whether these enforcement actions ultimately have merit, there is no doubt that federal regulators in both Canada and the U.S. are paying increasingly close attention to the gaming industry.

Indeed, Jennifer Shasky Calvery, the Director of the U.S. Financial Crimes Enforcement Network (FinCEN), took direct aim at the gaming industry in a speech she gave in Las Vegas last year:

“When some casinos say that they are in the gaming business and not really in the business of providing financial services, I get the impression that they are saying that they should not have as much responsibility in the AML context as those financial institutions whose business it is to receive, move, and protect money.  And when some casinos say that probing their customers about their activities outside of the casino will drive customers away, I sense that they feel that it is not their responsibility to protect their institutions, and our financial system as a whole, from being used by illicit actors.”

“Where this understanding is lacking, strong enforcement efforts may be needed.”

When it comes to AML/CTF compliance, the gaming industry may be at a crossroads.  To use a poker cliché, the industry can either rise to the occasion and go all-in, or fold and be prepared to face the harsh scrutiny of regulators, patrons and the public at large.

Web links for items mentioned in the above article:

Bill C-31
http://www.parl.gc.ca/content/hoc/Bills/412/Government/C-31/C-31_4/C-31_4.PDF

Department of Finance December 2011 Consultation Paper
http://www.fin.gc.ca/activty/consult/pcmltfa-lrpcfat-eng.pdf

FinCEN Director Speech in Las Vegas
http://fincen.gov/news_room/speech/pdf/20130924.pdf