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The House Always Wins: An Overview of the Licensing Process for Charitable Gaming Schemes

(2010-09-01)
 

By Solomon Friedman 
 
For Canadian charities, lotteries (including raffles, bingos and break-open tickets) are big business. In 2004, Ontarians spent more than $1.6 billion on charitable gaming ventures alone. Of that money, Ontario charities raised over $240 million. From those figures it is easy to see why lotteries are often a charity’s prime source of fundraising income.  

That being said, Ontario charities must comply with a strict set of application and registration requirements in order to run a legal gaming scheme. Those who violate the law face harsh sanctions, including the possibility of criminal charges and, for the most egregious offenders, prison time.  

In Canada, the Criminal Code outlines the criminal offences associated with operating lotteries and other gaming schemes. Section 206 states that the following activities, among others, constitute prohibited gaming schemes: 

  1. Conducting a scheme wherein a patron pays (or promises to pay) a fee in exchange for the chance to win a sum greater than the original fee.  
  2. Disposing of any goods or merchandise in a game of chance.  Under this provision, anybody who operates an unauthorized gaming scheme is guilty of an indictable offence and can be imprisoned for up to two years.  

However, s. 207 provides for several exceptions to these general rules. One of these exceptions, and the provision most relevant to charities, states that a charitable or religious organization, pursuant to a license issued by the provincial government, may conduct and manage a lottery scheme in that province if the proceeds from the lottery scheme are used for a charitable or religious object. 

Despite this seemingly broad authorization, charities are not permitted to operate any gaming scheme that involves dice games, three-card monte, punch board, coin table or bookmaking; in addition, any scheme conducted using a computer, video device or slot machine is similarly prohibited. 

Under Ontario’s legislative scheme, as delineated in the Gaming Control Act (and expanded upon in Order-in-Council 2688/92), charities must meet a strict set of criteria in order to be granted a license to operate a lottery. To be considered eligible for a license, the following three conditions must be satisfied:  

  1. The organization must have been in existence for at least one year prior to the license application. 
  2. The organization must have a place of business in Ontario and must prove that it was established to provide charitable services in Ontario.  
  3. The organization must demonstrate that the proceeds of the lottery will be used for the benefit of Ontario residents.  

If the eligibility criteria are met, the charity can apply for a license. To apply for a license, the following documents must be sent to the Alcohol and Gaming Commission:  
  1. An Application to Manage and Conduct a Raffle Lottery, filled out and signed by two officers of the charitable organization. 
  2. A copy of the organization’s Letters Patent.   
  3. A copy of the organization’s Constitution and By-Laws.   
  4. The organization’s Notification of Charitable Registration with the CCRA (if applicable
  5. The most recent Registered Charity Information Return & Public Information Return, as submitted to CCRA (if applicable).  
  6. The financial statement for the previous fiscal year (audited, where applicable)   
  7. A description of all programs or services provided in the previous year, along with specific costs incurred in delivery.  
  8. A detailed outline of all programs or services currently provided and specific costs incurred in delivery.   
  9. The organization’s current operating budget.  
  10. A current listing of the organization’s Board of Directors.   
  11. Any other information that will assist in determining the charitable nature of the objects and purposes. According to the government, this may include an annual report, correspondence relating to its charitable number for income-tax purposes or confirmation that it meets the reporting requirements of the Charities Accounting Act. 
  12. A statement describing the proposed use of proceeds.   

In addition to submitting the application itself, charities must also pay a fee in order to receive a gaming license. For most gaming schemes, including raffles, break-open tickets and bingo, the fee amounts to 3% of the total value of the prizes.   

Depending on the nature of the game (and the value of the prizes), the application is submitted to either the provincial Alcohol and Gaming Commission or to the charity’s local municipality. Despite this rigorous application process, the charity’s obligations do not end there. Lottery licensees must ensure that all funds raised are deposited into a designated trust account; in addition, a specific set of accounting requirements must be carefully followed.  

Some charities erroneously believe that running an unlicensed gaming scheme will not result in serious consequences. In 1999, Democrat Publications Inc., the official newsletter of the BC New Democratic Party, was fined $22,000 after pleading guilty to running a lottery without making the requisite donations to charity. In that same scandal, dubbed “Bingogate” by the national media, former NDP finance minister Dave Stupich was sentenced to two years in prison for his part in the fraudulent gaming scheme.

All things considered, charities should be sure to obey the federal and provincial laws concerning gaming and lotteries. A charitable organization that does not comply with the law is simply rolling the dice on its institutional and financial future.

Author: Solomon C. Friedman

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