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June-30-2010,
There's More to the Kahnawake-Antigua Agreement than Meets the Eye...By Hartley Henderson

Last month the island of Antigua and the Kahnawake reserve, located just south of Montreal, announced a memorandum of understanding that would allow businesses located in either jurisdiction the right to operate freely in either place starting in September 2010. In other words, if a gambling company was licensed and operating in Antigua they had the right to set up servers in Kahnawake and conversely if a company was licensed by the Kahnawake Gaming Commission (KGC) and had servers at Mohawk Internet Technologies they also had the right to set up shop in Antigua. The caveat would be that the licensee is bound by the regulations of the jurisdiction where they have their license issued and any concerns would be dealt with by that regulatory board. When the announcement was made it received little interest from the media or players but when examining it closely, the agreement could prove quite beneficial and significant for gambling companies and players. For the most part servers in Antigua have been fairly stable but there is no question they can go down. In fact a few years back all sites from Antigua were down for days as a result of a major hurricane which prevented bettors from getting wagers down at Antiguan sportsbooks during an NFL Sunday. Not surprisingly the companies lost a lot of potential revenue as a result of the disruption not to mention customer goodwill. Since Kahnawake is in Canada (albeit on sovereign land) and pretty much isolated from weather issues the agreement allows operators from Antigua to remain in the Caribbean country and enjoy the nice weather but also have back up servers in Kahnawake in case the servers in Antigua fail. In fact Mohawk Internet Technology claims that their servers are so stable that if there was a power outage in Quebec the servers could still operate without disruption for up to 4 days. Moreover it allows each country to maintain full control of the licensees and ensure they are bound by the regulations set forth in the jurisdiction the licensee is set up while providing the opportunity to move some of the operation closer to a different market.

I asked Chuck Barnett, spokesman for Mohawk Internet Technologies, what he thinks the greatest benefit of the reciprocal agreement is and he replied as follows:

"The most obvious benefit comes in the form of the immediate potential for operator co-hosting at the Mohawk Internet Technologies data center, but what this agreement does is open the door for the type of remote cross-jurisdiction regulatory control and cooperation that this industry has been moving toward for years. I believe that with Antigua and Kahnawake now working together, it provides fertile ground for further creativity and ideas in how we can find solutions to common challenges which ultimately benefit this industry and the players that support it."

It allows companies the option of seeking a different venue to test ideas if their current jurisdiction doesn't provide that opportunity. Many companies now have a main license in one country and data or call centers elsewhere. In fact most UK companies have their main offices in England although much of the business is run out of Alderney, Malta, the Isle of Man or Gibraltar. The reasons for this are numerous and relate to everything from tax shelters to the desire to have different part of their businesses operated in different locations. So there could be very good reasons that companies would prefer some of their operation to run from Antigua and other parts of the operation from the Native reserve.

Some were suggesting that the agreement was finalized specifically to get a UK white listing for Kahnawake but when I asked Chuck if the UK White Listing had any bearing on the decision he flatly refuted the notion.

"Having been a part of these discussions for the past 9 months I can pretty safely say that the notion of pursuing the UK "White" List was the furthest thing from our minds. The thrust of these discussions came from the notion, ?what does the industry need and how can we innovate to create solutions that balance the need for stringent regulatory control and the operators' need to be in several places at once?"

With Antigua and Kahnawake having served as the longest continual regulatory jurisdictions for the Online Gaming Industry, the time for this type of discussion just made natural sense.

For those unfamiliar with the white listing, the UK allows operators from a foreign jurisdiction to advertise in Britain only if the UK Department of Culture, Media and Sport (DCMS) agree that the regulations in that jurisdiction are sufficient to ensure that UK residents who gamble in those places will be treated fairly.

It also ensures that regulations are in place to address underage and problem gambling and that the owners of the companies are in good standing. The UK gave Antigua a white listing but didn?t provide one to Kahnawake although a couple of major consulting firms suggested that Kahnawake's regulations are as stringent as any other jurisdiction.

There are suggestions that the UK refused to give a white listing to Kahnawake following the Cereus Network (Absolute Poker and Ultimate Bet) cheating scandals but if that was the main reason it seems faulty. The breach in program security that allowed the cheating to occur by former Absolute Poker and Ultimate Bet employees happened when Excapsa Software was located in Costa Rica and prior to them being bought out by Joe Norton and Tokwiro Enterprises. All investigations conducted by the Kahnawake Gaming Commission along with outside companies such as Catania Consulting suggested that Tokwiro Enterprises had no part in the original design of the software and that their biggest mistake was purchasing the faulty company and software. This didn't absolve Tokwiro of responsibility but it did acknowledge that the Mohawk owners had no part in designing the software. As soon as the Kahnawake Gaming Commission found out about the breach they ensured that all players were refunded their losses and designed new regulations and security measures to try and ensure it never happened again.

Tokwiro enterprises paid all fines, agreed to be monitored closely and refunded all players out of their own pockets despite being duped themselves. To date there have been no other breaches and the owners and employees of Tokwiro are being monitored closely. In fact the KGC stated that if there is anything fishy at all with the Tokwiro in the future that their license to operate on MIT servers will be revoked. I recently asked a major poker operator if a similar breach could have happened in any other jurisdiction that has a white listing and he replied "of course, but we thank God it didn?t happen to us first."

The DCMS said it was going to probe the Antigua-Kahnawake agreement to make sure the companies advertising in the UK are truly Antiguan licensees but that shouldn't be much of a concern. After all many companies have a primary license in one location but operate servers in Kahnawake. Bodog is the most notorious company in that situation. Bodog's main physical location is in Antigua abut the gambling business is operated by servers that are run out of Kahnawake. And Cereus' license is shown as being owned by Blast Off Limited and headquartered in Malta although the servers are in Kahnawake.

Although both jurisdictions offer similar products there are indeed differences. The cost to operate an offshore gambling establishment in Antigua is US$100,000 for casinos and poker and US$75,000 for a sportsbook. The cost is dropped slightly if the operation and owners stay in Antigua plus all operators agree to provide the government a percentage of winnings. A license in Kahnawake is $10,000 a year regardless of what type of wagering is allowed and that gives the operator a hosted server and a license to operate from the reserve. Additional services are available at a cost. Mohawk law doesn't allow anyone to own property on the reserve unless they are Mohawks themselves and tenancy is frowned upon for non natives. Consequently most licensees that choose to have some employees at Kahnawake may have offices on the reserve but the employees live elsewhere, usually in Montreal.

Another advantage to licensees aside from the threat of a disruption in service, is the growing technological advances available in North America that may not be available in the smaller Caribbean country. In Antigua the companies are limited to whatever can be provided by Cable and Wireless. In Kahnawake they have the same fiber optic capacity that any business in New York City, Montreal or Toronto has since they are on the same grid. This means that businesses operating on Kahnawake?s servers can host far more people at the same time without any downtime and also provides companies the ability to develop more sophisticated software without concerns that the servers can't handle it.

Despite the past issues with Absolute Poker and Ultimate Bet one complaint players never seemed to have was lost connections or slow servers despite the fact Poker Scout showed the Cereus Network has up to 3,000 real money players and 25,000 total players operating at any one time. In fact during non peak time in the UK, the Cereus Network is almost always 3rd in traffic to only PokerStars and Full Tilt Poker. On the other end, Antigua does have very close relations with other jurisdictions which could come in handy for Kahnawake licensed companies not to mention the difference in climate. Surely many operators licensed in Kahnawake would love to live in a warmer climate during the winter while ensuring their business won?t suffer as a result.

Another advantage to players is the proximity of the servers to the U.S. market. In the past when Nevada gaming companies were asked why players would want to bet with their casinos should they go online rather than offshore, the common response was that the Nevada casinos were easily accessible so if players had any complaints they could hop on an airplane or get in a car and discuss the issue with the casino directly. The notion implied that their money was close at hand so in case of an issue they knew where to go. It wasn't feasible to expect a U.S. citizen to go to Antigua, Malta or Costa Rica to file a complaint. Kahnawake is located just south of Montreal which is only a 6 hour drive from New York City or Boston and is just across the world's most freely accessible border. While it's unlikely that Kahnawake would encourage individuals to come to the reserve to complain it is comforting for Americans to know that their money isn't too far away.

Lastly, one other advantage to companies is the comfort of knowing they have some other place to go if the heat is ever put on the other by the U.S. government. The UIGEA provides an exemption for native gaming in the United States and the U.S. governments have always shyed away from confronting the Natives over any issue regarding gambling. Canada is no different. The Indian Act first enacted in 1876 and amended on numerous occasions as well as the 1982 Canadian Constitution Act clearly gives natives the right to self government. The Canadian government affirmed this. Consequently Kahnawake has its own schools, police and fire departments, post office etc. And when traveling from Montreal into the reserve it is clear to anyone that the community is completely different than any other city in Quebec. Since 1995 when the Mohawks set up their own police force no outside police ever entered the reserve. This should make businesses feel fairly secure that they are protected from U.S. action. After all, Akwasasne, another Mohawk reserve on the U.S. side of the border, offers gambling along with and the U.S. government clearly has no intentions of challenging them. It would be hypocritical for the U.S. to try and interfere with Canadian native rights if they won't even challenge their own. Similarly, Antigua has made it clear that they won't stand down to the U.S. and have successfully challenged the USTR in the WTO courts. With Antigua and Kahnawake one has 2 jurisdictions who believe in their sovereign rights including the right to offer the product to U.S. citizens and are willing to fight to any degree they must to protect those rights. Consequently, it is clearly an agreement that makes sense.

The Antigua-Kahnawake pact goes into effect in September. It should provide many new opportunities for businesses licensed in either jurisdiction.

07-01-2010
Hartley Henderson
Majorwager.com
henderson@majorwager.com

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