Failure of Ontario to ‘conduct and manage’ online gaming makes iGaming system illegal, says lawsuit

Mohawk Council of Kahnawà:ke brought constitutional challenge against iGaming Ontario and MAG

Failure of Ontario to ‘conduct and manage’ online gaming makes iGaming system illegal, says lawsuit
Eric Doucet is in-house legal counsel for the Mohawk Council of Kahnawà:ke.

The Mohawk Council of Kahnawà:ke (MCK) is suing iGaming Ontario and the Attorney General of Ontario, arguing the way they have organized the province’s new online sports betting market is illegal and unconstitutional.

While recent amendments to the Criminal Code permit provinces to regulate single-event sports betting, the law requires that provinces “conduct or manage” it themselves. MCK claims Ontario has illegally passed off this role to private operators. The First Nation also says the iGaming scheme is outside provincial powers because it seeks to expand the exceptions to illegal gambling in the Criminal Code.

“The provinces really need to be the controlling mind of the lottery scheme,” says Eric Doucet, MCK’s in-house legal counsel. “We can look at certain criteria. For example, whether or not the province owns the platform, whether or not the province is making any of the key decisions, whether or not it’s responsible for compliance, whether or not it’s responsible for retaining suppliers, and whether or not the province is the primary beneficiary of the scheme.”

“When looking at Ontario’s reinterpretation of ‘conduct and manage,’ that’s not what we’re seeing,” he says. “In our view, it’s really the operator. What they’ve done is they’ve registered operators to essentially do the conducting and the managing of the lottery schemes for them.”

In its announcement, the MCK also said that the framework “disregards the expertise and the rights of First Nations to operate and regulate safe and responsible gaming,” which the Kahnawà:ke Gaming Commission has done for 25 years, operating in Ontario through its subsidiary, Mohawk Online Limited. The MCK is not taking part in Ontario’s new iGaming Framework.

The MCK is seeking a declaration that the Ontario government does not “conduct and manage” in its online gaming market, as required by s. 207(1)(a) of the Criminal Code, and an order quashing the iGaming service because it is beyond the power of the Legislative Assembly of Ontario. In the alternative, MCK wants an order declaring iGaming “inoperative or otherwise without effect to the extent it permits online lottery schemes which are not conducted and managed by the Ontario government.”

Renée Pelletier and Nicholas Kennedy of Olthuis Kleer Townshend LLP are acting for MCK in the lawsuit.

Ontario created iGaming Ontario, a new subsidiary of the Alcohol and Gaming Commission of Ontario (AGCO), to establish a “safe, legal, and competitive online gaming market,” said the Ministry of the Attorney General (MAG) last year. Their announcement notes that Ontario seeks to provide consumers choice and minimize risk, as the province’s residents spend nearly $1 billion per year on online gambling, with 70 percent of the activity occurring on “unregulated, grey market websites, with limited, if any, consumer protecting and responsible gaming measures.”

The AGCO is also responsible for regulating all gaming activities in the province, and these functions will be kept separate, said MAG. The Ontario Lottery and Gaming Corporation (OLG) has its iGaming operations, which it will continue to conduct and manage.

iGaming Ontario declined Law Times’ request for comment because the matter is currently before the courts. The MAG did not respond before deadline.

According to the MCK’s notice of application, Ontario initiated its move to launch an online gaming market with Bill 229, the Protect, Support and Recover from COVID-19 Act (Budget Measures), 2020, which received Royal Assent on December 8, 2020. Through amendments to the Alcohol and Gaming Commission of Ontario Act and the Alcohol Cannabis and Gaming Regulations and Public Protection Act, Ontario gave the Lieutenant Governor in Council the power to make regulations instituting an AGCO “lottery subsidiary” to conduct and manage “online lottery schemes.”

Last year, with a private member’s bill introduced by Conservative Kevin Waugh, the federal government enacted Bill C-18, the Safe and Regulated Sports Betting Act. Bill C-218 repealed s. 207(4)(b) of the Criminal Code, permitting provinces, or individuals licensed by a province’s Lieutenant Governor in Council, to “conduct and manage a lottery scheme in the province that involves betting on a race or fight or on a single sport event or athletic contest.”

On July 6, 2021, Ontario’s Lieutenant Governor in Council exercised its regulation-making powers to establish iGaming Ontario as a lottery subsidiary. According to MCK’s notice of application, the AGCO then published a guide for private operators registering gaming websites, which said the private operators would have “control” over the site and “ongoing responsibility for the gaming site as a whole, including key decision-making activities.” That was followed, in September 2021, with the Registrar’s Standards for Internet Gaming, which detailed regulatory standards for the gaming websites. The MCK’s notice of application said these standards make the private operators “responsible for the conduct and management of their online gaming platforms.”

Operators registered with the AGCO began offering games on April 4, 2022.

While s. 206(1) of the Criminal Code prohibits “all forms of gaming,” ss. 207(1)(a) and 207(4) create an exception for provincially conducted and managed lottery schemes, said MCK. In its notice of application, the First Nation listed five ways in which the online lottery schemes are not conducted and managed by Ontario. First, private operators own and operate their platforms. The private operators are “responsible for key decision-making activities.” They are responsible for meeting compliance obligations. They have the authority to retain suppliers. And it is the private operators, and not the Ontario government, who are “the primary beneficiaries of revenue generated by the iGaming Scheme.”

The fact that the private operators, not the province, oversee these functions means that the private operators do not fall within the exception under s. 207(1)(a) and 207(4), and they violate the prohibition in s. 206(1), said the MCK. By expanding the exception or permitting activity Parliament has prohibited in the Criminal Code, the iGaming system is ultra vires Ontario “because it is in pith and substance in relation to criminal law.” Federal paramountcy also renders the system inoperative because dual compliance “is impossible,” said the First Nation.

The Mohawks of Kahnawà:ke are part of the Mohawk Nation, and their community is in Quebec, across the St. Lawrence River from Montreal.

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