Gambling in Brazil: to regulate or not to regulate, that is the question

Brazil has been mulling over the proposal of a market-wide regulation of gambling activity. There was a point when this seemed all but certain: the text of a draft bill was produced and the Chamber of Deputies voted to adopt it. However, this progress has been stagnated by political reality.

Up until the beginning of this year, Brazil was making healthy progress to regulate the gambling, betting and lottery markets. In February 2022, the Chamber of Deputies (the Lower House of the National Congress of Brazil) approved the basic bill, known as bill 442/91, with 246 votes against 202. Progress appears to have slowed since and momentum replaced with politics that seems to have come in the way. The purpose of this piece is to give an overview for its readership of the political landscape and context affecting the regulation as well as recapitulate the legislative proposal.

There are several overlapping and, at times, even competing political interests impacting the progress. To enact legislation in Brazil, all the governmental bodies have to reach a consensus and there are several constitutional principles that ensures appropriate balance of powers between all the stakeholders. Accordingly, like threading a needle it has to be a precise process that goes through the appropriate hole. The relevant context for today is:

• Despite the fact the Chambers of Deputies approved the bill some time ago, the Senate has still not approved it.
• If the Senate approves the bill, it has to be ratified by the president before it passes into law, however, the president has made indications that he may not wish to ratify it. If this were to happen, the Senate can override it still but would need a certain number of votes to do so.
• In addition to all this there will be a general (presidential) election in Brazil, currently scheduled for 2 October 2022 which has thrown the process into limbo. Lúri Ribeiro da Silva e Castro, who is the undersecretary for competition at the Brazilian Ministry of Economy as well as the head of special affairs, lotteries and export processing zones, said that while the bill was at the centre of attention, he is unable to give a deadline for when the regulation will be enacted because of the ‘political’ dimension impacting it.

Project in progress

The bill mentioned above and the whole regulatory project has been driven by Felipe Carreras, who is a member of the Chamber of Deputies and from the Brazilian Socialist Party, and by the respective Working Group created by Arthur Lira, the president of the Chamber of Deputies since February 2021 and  part of the Progressistas political party.

It is a far-reaching piece of legislation that will seek to regulate a broad range of gambling-related activities among many others: land-based casinos of the types that are located in resort destinations, bingo halls, land-based slot halls, online casinos, sports betting, Jockey Clubs taking bets on horses and “Jogo do Biocho” which is a popular, and at present not legal, type of lottery in Brazil.

This extensive approach was justified by Herculano Passos, a member of the Working Group and from the Republicans political party, when he spoke with Instituto Jogo Legal, a Brazilian NGO specialising in the gambling industry. He said that the point of the exercise is to put all tenets of the industry on the table and subsequently decide what should stay inside the regulatory perimeter and what should be left out.

One would see the merit in this approach as prudent as the only way to ensure proper regulation and oversight is to account for all current and future verticals.

It is also worth mentioning that the bill proposes to create a national regulator (SINAJ) for the industry as well as a national registry (RENAPRO) of excluded players which will not allow players to engage with the gambling offerings unless they are fully registered in this system.

Regulated verticals

It is worth noting that while the legislative process is underway, the requirements are subject to change. In any case a high-level overview of the current form for regulated verticals is:

• Online casino – will see separate regulations emitted by the Ministry of Economy. What is being proposed at present is two significant things operators should take note of: (i) foreign URLs which are not authorised will be blocked (although particular means of blocking are yet to be identified) and (ii) those that are licensed will be required to have their servers physically present in Brazil.
• Land-based Casino – can only be established in places which constitute a ‘resort’ which includes at least 100 high-end hotel rooms and that has event venues, restaurant, bars and shopping malls. The casino may not take up more than 20% of the complex where it seeks to set up. There have also been talks about tendering these licences to the highest bidder.
• Sports betting and lottery – it is proposed for both to be outside of the bill and as such be subject to the requirements of the Ministry of Economy (similar to the online casino vertical).

The bill and the legalisation also includes bingo as well as local jockey clubs and Jogo do Biocho.

Ilya Machavariani is one of the founders of 4H Agency and holds the position as the CEO of the agency. Prior to founding 4H Agency, Machavariani was heading up the Eastern European gambling practice at the largest international law firm in the world. This experience has enabled him to advise the whole spectrum of the agency’s clients: from global publicly listed gambling groups to startups. With an extensive 10+ years’ background in business and legal consulting, he advises clients on a complete range of gambling-related issues – expanding into new markets, obtaining gambling licences, acquiring new PSPs, restructuring gambling operations and product and much more.

Michel Reznik is a banking and finance expert who spent the majority of his career at the heart of the banking and payments industry in London. There he worked for some of the leading financial institutions including investment banks and investment managers. At 4H Agency Reznik is heading the agency’s banking and payments department and collaborates closely with merchants and payment services institutions to structure, arrange and organise their banking and payments operations and offering. As a result of this work, clients have been able to access new markets and payment methods. He is also heading up the Latam office of 4H Agency and assists clients to identify and utilise the exponentially growing potential of the region.