In the late 1990s the Mohawaks of Kahnawake, near Montreal, opened Canada's first data centre located on First Nations territory and enacted their own regulation for online gambling. Their online gambling regime is administered by the Kahnawake Gambling Commission and it has issued dozens of gambling licenses that are used by hundreds of online gambling websites. Although gambling has likely not been a huge moneymaker for the Kahnawake territory, it has paved a path over the last twenty years that is a useful case study for innovative territorial leaders. What might be the next digital business opportunity for First Nations?
Learning From the Online Gambling Example
Online gambling is a natural fit with offshore jurisdictions and First Nations territories. Places like Antigua and Malta have made billions from hosting gambling operations that require minimal local infrastructure and take advantage of the digital nature of gambling, low/no tax rates, and favourable (minimal) regulation. But the same properties that make online gambling attractive to offshore jurisdictions are also found in many First Nations territories in Canada. The Kahnawake people may have been the first to market, but there's plenty of room for further development of the model.
How to Build the Necessary Infrastructure
Canada's First Nations can take the example of Kahnawake with gambling and apply the same logic to other industries. Anything that's primarily online and benefits from lower regulatory burdens is a candidate. Cryptocurrency applications and e-commerce in general are good candidates. What's been lacking to-date is three things:
1. Political leadership and a willingness to take on the uncertain legal relationship between First Nations and the provincial/Federal governments. First Nations are usually highly dependent on government funding and may not want to take on new legal/political challenges given their constrained resources.
2. Clear legal structures for taking advantage of tax opportunities like doing business through Economic Development Corporations. This is a complicated area of tax and developing law.
3. Investment capital to create the legal and business environment necessary for entrepreneurs. A new regime that inspires confidence of Canadian and international customers will require significant investment, perhaps requiring several communities to band together.
Why Doesn't This Exist Yet?
Few entrepreneurs today are willing to invest the significant amounts of time and money necessary to find a partner First Nations territory willing to create the necessary structure for them. And in turn, small communities with limited resources (already stretched far beyond capacity in many places) are understandably reluctant to invest without customers. Even the Kahnawake Gambling Commission, widely considered to be a successful example of this, has probably not brought the level of financial benefits that its proponents originally envisioned.
Competing with Island Countries for Emerging Industries
One possible solution is to reorient economic development efforts along the lines of what offshore jurisdictions have pursued, but with an eye to regulatory arbitrage. This seems like an effort unlikely to attract support from the Canadian government, but it could be an effort that some of the more successful territories could invest in. And what would that strategy look like?
Embracing blockchain applications and the cryptocurrency industry would be one of the more cutting edge approaches but even within this niche there's competition from offshore jurisdictions like Barbados and Malta. To be successsful, this approach would have to combine a legal licensing regime similar to the Kahnawake Gambling Commission, legal support for the territory's position (i.e. commissioned legal memos), surrounding business services that fit with the territory's approach (directing people to First Nations professionals first), and business development for handling inbound requests and drumming up international sales. The international angle for this is the only way it would be profitable because Canadian markets aren't large enough to support the scale necessary to see this strategy succeed.
What sort of cryptocurrency activities would best be located on First Nations territory? Cryptocurrency exchanges are the most obvious example, but a more ambitious goal would be to create an environment that could positively support new businesses. Startups can face daunting legal challenges in starting their businesses in other North American jurisdictions like Ontario. The challenge for a blockchain strategy for First Nations is how to nurture the right sort of businesses that can fit within the legal positioning that the territory develops. Tax benefits would also be of critical interest to the companies. But first and foremost would be to create an environment that's easy to understand, provides clear benefits to entrepreneurs and leverages the best of the current business & legal environment that exists with First Nations in Canada. "In Canada" is the key as there's an opportunity to essentially mix-and-match Canada's laws for business advantage, as has been done by those in the tobacco/cannabis industry and online gambling.