After the publication of Provisional Measure (PM) no. 1,182 on July 25, 2023, which marked the first step towards regulating sports betting in Brazil, we have been following closely the bill that had reportedly been presented to the National Congress alongside the said PM.
Much was said about this bill, which originally had a narrower scope than the substitute document presented and approved on the evening of Wednesday, September 13th, in the Chamber of Deputies.
The Government's intention was to leave some aspects of regulation to subordinate and administrative acts. However, despite the need for the publication of numerous regulations that will address the details of the authorization procedure for the operation of this activity in Brazil, the substitute for Bill 3,626 of 2023 came packed with various provisions and some unexpected novelties.
At the eleventh hour and on the eve of its approval by the Chamber of Deputies, online casino games were included in Bill 3,626/2023. Nevertheless, the definition of online gaming in the bill is broad, somewhat imprecise, and will likely require the issue of new legal instruments to define its scope.
Another novelty brought by Bill 3,626/23 was the mention of fantasy games and the explicit declaration that they do not constitute a lottery, commercial promotion, or fixed odds bet, and thus, they are exempt from requiring authorization from the Ministry of Finance for their operation.
This authorization (or License), by the way, in the bill, lost a few years of validity, reducing it from 5 years, as previously provided in PM 1,182/2023, to 3 years.
Once again, no deadline was set for the implementation of the new rules for sports betting in Brazil, nor a deadline for foreign companies to adapt to this new scenario. Nevertheless, the government's intention is to start collecting license fees in January 2024.
Whether this will be possible remains to be seen.
From now on, with the submission of Bill No. 3,626/2023 to the Senate, there is a 45-day deadline for its analysis.
Below are its main provisions.
Definitions:
The bill incorporates the definition of a bet as follows: "an act by which a certain amount is placed at risk in the hope of obtaining a prize."
Real sports-themed events are defined as follows: "an event, competition, or act that includes sporting competitions, tournaments, games, or tests, whether individual or collective, excluding those exclusively involving participants under eighteen years of age, the outcome of which is unknown at the time of the bet(...)."
Online gaming is defined in the bill as: "an electronic channel that enables virtual betting on a game in which the outcome is determined by the outcome of a random future event, based on a random number generator, symbols, figures, or objects defined in the rules system."
Online gaming virtual event, on the other hand, is defined as: "an event, competition, or act of online gaming, the outcome of which is unknown at the time of the bet."
Operating Regime and General Requirements for Authorization:
The operation of fixed-odds bets will take place in a competitive environment, through discretionary authorization, at the discretion and convenience of the Ministry of Finance (MF), with no limit on the number of authorizations. It may, at the discretion of the MF, be granted for up to 3 years.
Conditions for authorization include: (i) payment of a "fee" of up to R$30 million (USD 6 million) , (ii) establishment of a company in Brazil, with headquarters and administration in the national territory, (iii) minimum value and form of full payment of the share capital, (iv) proof that at least one of the control group members has knowledge and experience in gaming, betting, and lotteries, (v) appointment of a director responsible for interfacing with the Ministry of Finance, (vi) structuring of a player service and ombudsman service, (vi) compliance with technical and cybersecurity requirements, (vii) association of the operating agent with national or international organizations for monitoring sporting integrity.
The authorization procedure will be conducted electronically, and such authorization will only be issued if, after examining the documentation and evaluating the technical and financial capacity of the operator, analyzing the reputation and knowledge of its controllers and administrators, the Ministry of Finance concludes that the legal requirements have been met.
[IMPORTANT: Although the bill allows for the offering of sports bets in physical establishments, in addition to virtual ones, online gaming bets can only be offered online.]
Advertising and Propaganda and Anti-Corruption Rules:
The advertising of brands and services of operators not authorised to operate in Brazil will be prohibited.
Furthermore, the rules regarding the advertising and promotion of authorized operators in Brazil, although still subject to specific regulation to be issued by the Ministry of Finance (and possibly by the National Council of Advertising Self-Regulation - CONAR), must involve information for the prevention of compulsive gambling, as well as warning clauses.
Upon notification by the Ministry of Finance, (i) advertising companies must exclude the promotion of unlicensed operators, and (ii) internet service providers must block websites and remove applications that offer fixed-odds betting that does not comply with the above advertising rules.
The fixed-odds sports betting operator must, among other obligations to be determined by regulations of the Ministry of Finance:
- (i) integrate national or international organizations for sporting integrity monitoring, and
- (ii) adopt security and integrity mechanisms in betting and mitigate the manipulation of results and corruption in real sports-themed events.
Payment Transactions:
Payment processors are prohibited from allowing or processing transactions intended for bets by unlicensed operators.
Additionally, only institutions authorized by the Central Bank are exclusively permitted to offer transactional accounts or any financial services that allow for the execution of bets and the receipt of prizes.
The betting operator must adopt mechanisms:
- (a) to verify the identification of bettors and must maintain, as provided for in future acts to be issued by the Ministry of Finance, records of all operations performed (prizes earned, bets placed, withdrawals, and deposits in transactional accounts); and
- (b) for the analysis of bets with the aim of categorizing them as suspicious of money laundering and terrorist financing, and, in the affirmative case, to report them to the Financial Activities Control Council (COAF).
Prohibitions:
Fixed-odds betting operators are prohibited from acquiring, licensing, or financing broadcasting rights for sporting events held in Brazil.
The following are prohibited from betting: (i) individuals under 18 years of age (ii) owners, administrators, directors, and other persons with significant influence over operators (iii) public agents who directly regulate, inspect, and control the sector at the federal level (iv) persons with access to computerized systems of fixed-odds betting operators (v) individuals who may influence the results of games and (vi) other persons who may be included in the Ministry of Finance regulations.
[It is important to note that the ban on people registered in national credit protection registers being able to bet has been removed from the bill].
Betting operators are also prohibited from (i) providing advances and bonuses, even as part of promotions, advertising or marketing, (ii) entering into commercial partnerships to enable or facilitate bettors' access to credit or commercial financing, and (iii) establishing agencies in their physical establishments that offer credit and similar services to bettors.
Consumer Rights:
Bettors will be subject to the provisions of the Consumer Protection Code, in addition to their basic rights to adequate information on the operation of the platforms and rules for the use of electronic channels. It will also be compulsory for the operator to have a customer service for in Portuguese language.
Taxation:
Income tax will be imposed at a rate of 30% on the prize received by the bettor, respecting the first income tax bracket exemption (R$2,122.00).
The bill maintains the operator’s 18% contribution on GGR (Gross Gaming Revenue).
[It is important to note that, in addition to the 18% on GGR, the other taxes and contributions owed by legal entities - IRPJ, CSLL, PIS, COFINS, ISS - before the tax reform - are also levied on the revenue resulting from the operators' activities].
In addition, betting operators will have to pay an inspection fee on the total amount earmarked for the payment of prizes each month, according to the table attached to Law 13.756/2018.
Inspection and Sanctioning Regime:
The operating agent must use auditable systems with unrestricted access to the Ministry of Finance, and future regulations will determine the form and frequency of submission of information and clarifications by betting operators.
The operating agent will be obliged to report to the Ministry of Finance, within 5 days, any suspected manipulation events.
Administrative proceedings may be initiated to investigate violations and impose penalties based on the seriousness of the violation.
Among the violations are (i) operating without proper authorization, (ii) omitting information or documents, (iii) advertising unlicensed operators, (iv) executing or encouraging activities that contribute to practices detrimental to sporting integrity.
Fines can range from 0.1% to 20% of turnover after taxes, with a maximun of a R$2 billion (US$300,000,000) fine. Warnings and suspension of activities may also be imposed.
The bill provides for the possibility of injunctions if there is a fumus boni iuris (indication of a valid legal claim or right) and periculum in mora (risk or harm associated with delaying action or not taking immediate measures) - before or during the administrative procedure.
Fines for non-compliance with preventive measures may be imposed up to a maximum of R$100,000 (US$20,000) per day.
There is a provision for the suspension or non-initiation of an administrative procedure to investigate an infringement if the person concerned undertakes to cease or correct conduct considered to be irregular.
