Almost at the end of the year, on 12.30.2023, the law 14790 that regulates the betting activity in Brazil was sanctioned.
The final version of the law did not differ much from what was already stated in Bill 3626/2023 and the big novelty was the inclusion of online casino games in the text and under the 30Million license that is now due for exploitation of such activity.
Another very important item addressed in Law 14,790 concerns the exploitation of state lotteries. During the regulatory process, much was said and debated about the possibility of state lotteries offered online to their consumers located outside the respective state. Some states even started their own authorisation processes and announced the provision of this service at a national level.
Law 14790 contains an entire chapter dedicated to establishing rules for the operation of state lotteries and expressly prohibits the "multi-jurisdictional" operation of state lotteries, making it clear that the commercialisation and advertising of lotteries by the states must be restricted to consumers physically located within the limits of their circumscription or territoriality.
Although the Government's intention was to leave some aspects of the regulation to subordinate and administrative acts and despite the need for the publication of regulations that will address the details of the authorization procedure for the operation of this activity in Brazil, Law 14790 is already very detailed (maybe even too much).
Below are its main provisions.
Definitions:
The bill incorporates the definition of online gaming 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."
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.
Operating Regime and General Requirements for Authorization:
The operation of fixed-odds bets will take place in a competitive environment, through discretionary authorization by the Ministry of Finance, with no limit on the number of authorizations. It may, at the discretion of the MF, be granted for up to 5 (five) years.
Conditions for authorization include: (i) payment of a "fee" of up to R$30 million (USD 6 million) for the use of 3 trademarks, (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 and in charge of customer service for bettors and responsible for handling feedback and complaints, (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 and (viii) requirement to have a Brazilian partner holding at least 20% (twenty percent) of the corporate capital of the legal entity.
The partner or controlling shareholder of a fixed-odds lottery betting company, whether individually or as part of a control agreement, may not hold a direct or indirect stake in a Football Corporation (Sociedade Anonima do Futebol – SAF) or professional sports organization, nor act as an executive of a Brazilian sports team.
Mandatory Corporate Policies
Betting agents must adopt policies, procedures, and internal controls for:
I-Customer service for bettors and ombudsman services;
II - Prevention of money laundering, terrorism financing, and proliferation of weapons of mass destruction;
III - Responsible gaming and prevention of pathological gambling disorders; and
IV - Betting integrity and prevention of match-fixing and other frauds."
Deadline for adaptation to the new rules – to be established in regulation but not less than 6 months.
Advertising and Propaganda and Anti-Corruption Rules
The advertising of brands and services of operators not authorised to operate in Brazil will be prohibited.
The rules for advertising and promotion of authorized operators in Brazil, although still subject to specific regulations from the Ministry of Finance and the National Advertising Self-Regulation Council (CONAR), which, by the way, issued its rules on January 2, 2024, should include information for the prevention of compulsive gambling, warning clauses, and be explicit regarding the prohibition of participation by individuals under 18 (eighteen) years old.
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 integrate national or international organizations for sporting integrity monitoring.
Payment Transactions
Payment processors and financial institutions are prohibited from allowing or processing transactions intended for bets by unlicensed operators. [Such a prohibition will only be imposed after a period to be determined by the Ministry of Finance, but never less than 90 days from the start of the authorisation procedure.]
Additionally, only institutions authorized by the Central Bank are permitted to offer transactional accounts or any financial services that allow for the execution of bets and the receipt of prizes.
The payment of prizes must be exclusively made through transfers, credits, or remittances to bank accounts or payment accounts held by the respective bettors and maintained in institutions with headquarters and administration in the country that are authorized by the Central Bank of Brazil.
The betting operator must adopt mechanisms:
(a) to verify the identification of bettors (including the use of facial recognition systems) and maintain 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).
It will also be mandatory for operators to develop a feature for limiting the gaming time.
Prohibitions
The operating agent, as well as its subsidiaries and parent companies, is prohibited from acquiring, licensing, or financing the acquisition of rights to sports events held in the country for the emission, broadcast, transmission, retransmission, reproduction, distribution, availability, or any form of display of their sounds and images, by any means or process.
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 (vi) individual with compulsive gambling disorder, based on assessment by a qualified mental health professional and (vii) other persons who may be included in the Ministry of Finance regulations.
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, costumers have the right to (i) adequate information on the operation of the platforms (ii) rules for the use of electronic channels (iii) adequate and clear information and guidance regarding the conditions and requirements for predicting lottery outcomes and prize verification (iv) adequate and clear information and guidance regarding the risks of losing bet amounts and the issues associated with pathological gambling and (v) protection of personal data.
It will also be compulsory for the operator to have a customer service in Portuguese language.
Taxation
Income tax will be imposed at a rate of 15% on the net prizes received by the bettor – This applies also for prizes received in Fantasy sports.
Law allows for 88% (eighty-eight percent) from the proceeds to be allocated to cover operating and maintenance expenses of the operators and 12% (twelve percent) will be allocated to several beneficiaries (including education sector, public security, sports and tourism).
It is important to note that, in addition to the 12% on GGR, the other taxes and contributions owed by legal entities - IRPJ, CSLL, PIS, COFINS, ISS - 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 (updated by Law 14.790 - R$54,419 to R$1.9m (approximately US$10,000 to US$400,000).
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.
The operating agent must have an administrative structure capable of promptly and effectively addressing requests, requirements, inquiries, or demands from (i) Ministry of Finance (ii) public authorities within the National Consumer Protection System (iii) the Judiciary, the Public Prosecutor's Office, and the Public Defender's Office (iv) other Brazilian bodies, entities, and authorities for the exercise of their legal duties.
Administrative proceedings may be initiated to investigate violations and impose penalties based on the seriousness of the violation and 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.
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.
It is important to emphasize that the penalties stipulated by the law are also applicable to individuals or legal entities engaging in, without proper authorization, activities related to betting.
The law 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.
General Provisions
Fantasy sports (electronic sport where competitions take place in a virtual environment based on the performance of real individuals) have been expressly excluded from the rules related to lotteries, commercial promotions, and fixed-odds betting.
Subordinate acts to be enacted by Ministry of Finance will establish the form and process by which authorizations will be granted for all operators of the fixed-odds betting lottery modality to make use of (i) the image, name, or sporting nickname, and other intellectual property rights of athletes; and (ii) the denominations, brands, emblems, anthems, symbols, and similar elements of sports organizations.
State Lotteries
Law 14790 contains an entire chapter dedicated to establishing rules for the operation of state lotteries and expressly prohibits the "multi-jurisdictional" operation of state lotteries, making it clear that the commercialisation and advertising of lotteries by the states must be restricted to consumers physically located within the limits of their circumscription or territoriality.
Effective date of the law
The law came into effect on the date of its publication, except for the incidence of the social contribution on the revenue of operators, which must comply with the 90day term, and for the article that establishes as an offense the dissemination of advertising of unauthorized platforms, which will come into effect after the beginning of the authorization process.
