A general introduction to gambling law in Brazil

57 01/07/2022

All questions

Overview

Brazil is the largest and most populous country in Latin America, with a total area of 3,265,080 square miles and a population of more than 214 million people (it is the fifth-largest country in the world with regard to size and population).2 Brazil is a federation divided into 26 states, one federal district and 5,570 municipalities.

Since 2012, owing to the depreciation of the real against the US dollar and the economic recession that began in 2015, Brazil's GDP has decreased, and the country is now the world's 12th-largest economy,3 having formerly been the sixth largest in 2011.

Almost all gambling activities have been prohibited in Brazil for over 70 years. Since the general ban on games of chance in 1941, the only legal gambling activities are the lotteries under the state monopoly, and horse-race wagering. According to Brazilian law, poker is a game of skill and is, therefore, not illegal.

With the recent economic turmoil, gambling regulation (and taxation) may help the government to raise revenues. Several bills of law are currently under discussion in the Congress concerning casinos, bingos, online gaming and lotteries. Integrated resort casinos were included in the Tourism Law Bill, and an Integrated Resort Bill was introduced in 2020.

The opening of the Brazilian gambling market started with the creation of the virtual and land-based instant lottery called Lotex by Law No 13,155/2015. The tender for the privatisation of Lotex took place in May 2019, but the only bidding consortium forfeited the award in October 2020. As result, the Brazilian government will need to reconfigure the business model and will probably lower the financial and technical requirements to attract more bidders in a future attempt to privatise Lotex.

In December 2018, Law 13,756 created the fixed-odds sports betting lottery method, granting powers for the Ministry of Economy to regulate it within a four-year time span and issue licences. While there was expectation for sports betting regulation to be enacted in 2020, after the covid-19 pandemic the Ministry of Economy was focused on providing financial assistance to other governmental entities and also directly to citizens.

Notwithstanding the setbacks, the Secretariat for Public Policy Evaluation, Planning, Energy and Lottery (SECAP), which is under the Ministry of the Economy, is in charge of regulating sports betting and has already issued three public consultations on the matter, and it is expected that regulation will be enacted in the first semester of 2022, before the FIFA World Cup in Qatar. SECAP succeeded the Secretariat of Fiscal Monitoring, Energy and Lottery of the Ministry of Economy (SEFEL), which was extinguished by Decree No 9.266/2018.

i Definitions

Gambling, in general, is not regulated in Brazil. In fact, since the 1940s, Brazil has been a closed market for gambling, with only state-owned lotteries and horse-race wagering. For a brief period in the 1990s, bingo and slot machines were permitted, but they were banned in the mid-2000s.

As a consequence, Brazil's gambling regulation is still incipient. 'Game' is a contract type expressly nominated, but not defined, by the Brazilian Civil Code. Its definition is provided by jurisprudence.

Luiz da Cunha Gonçalves4 defines a game contract as 'a commitment, agreed as for hobby or as for desire for money, between two or more individuals, in which each player agrees to pay a certain sum of cash or something else to the other party(ies) if he/she loses, based on some future event, which implementation depends, at least in part, on the activity of the players'.

Clóvis Beviláqua,5 the author of the previous Brazilian Civil Code, defines a game contract as a random contract, in which two or more people promise a certain sum, among the contractors, to the person for whom the result of chance is most favourable. In the same vein, Pablo Stolze Gagliano and Rodolfo Pamplona Filho6 provide a very detailed explanation on game contracts:

In fact, the contract game can be defined as a legal transaction whereby two or more people hold a particular promise (usually with pecuniary content) in favour of the person who achieves a favourable result in the performance of an act in which everyone participates. Note that the game (and thus the success or failure of each party) necessarily depends on the performance of each party (called a player), either by his intelligence, or by his skill, strength, or simply luck.The bet contract, in its turn, is a legal transaction in which two or more people with different opinions on a certain event, promise to perform a particular action (in general, with monetary content) to the benefit of the party whose opinion prevails. Hence, in the bet, there is not the requirement for the active participation of each party (called a bettor) to influence the outcome of the event, but rather only the expression of her/his personal opinion.

The difference between a game and a bet is that the result of a game will depend on the action of the parties, while the result of a bet depends on facts unrelated to the parties' will. It is important to highlight that these definitions have been created by jurisprudence and are not expressly set forth by law, although they are widely accepted and applied by the courts.

'Games of chance' are defined by Article 50 of Decree-Law 3,688/1941 (the Misdemeanour Law) as:

'Public place' is defined as:

Games of chance are treated as misdemeanours, which are recognised by law as offences punishable by minor penalties (Article 61 of Law No. 9,099/95). In other words, a misdemeanour is a less offensive crime when compared to a criminal violation of Brazilian law. The purpose of using the term 'misdemeanour' is to implement the 'moral police', which, according to Professor Humberto José da Nova, includes 'safeguarding morality' in order to 'prevent certain illegal and vicious acts, or defend certain moral sentiments regarded as indispensable to harmonious social coexistence, the effects of which are harmful to the interests of the collectivity'.7

Contrary to this, 'games of skill' are those whose results depend on ability of the player, more than on luck. These are lawful.

'Lotteries' are defined by Article 51 of the Misdemeanour Law as the operation of payment of prizes depending on the result of the draw of tickets, lists, coupons, vouchers, signs, symbols or similar means.

The same Article 51 of the Misdemeanour Law prohibits the operation or promotion of unauthorised lottery games in Brazil, including the distribution of foreign lottery tickets in the country. The Brazilian numbers game jogo do bicho (the animal game), which is similar to a lottery, is also prohibited.

Horse-race betting is regulated by Law No. 7,291 enacted on 19 December 1984 and its 1988 regulation, Decree No. 96,993.

Finally, contest regulation is subject to federal jurisdiction in Brazil. Therefore, there is equal legal treatment in all of the 26 states and the Federal District. In Brazil, whenever a contest is held to promote the sale of products or to promote brands, it is deemed as a prize promotion, subject to Law No. 5,768 of 20 December 1971, Decree No. 70,951 of 9 August 1972 and Law 13,756 of 12 December 2018.

ii Gambling policy

As a rule, gambling has been prohibited in Brazil since 1946, when the last casino permits were cancelled. A number of scholars believe the gambling prohibition in Brazil was a reaction to the industrialisation of the country, because of the need to make free men dedicate their time to work and not to leisure. This, together with the religious belief that 'in the sweat of thy face shalt thou eat bread', caused gambling to be seen as something negative. However, this belief is no longer socially widespread in Brazil.

There is, however, a general perception that gambling activities in Brazil are a cover for money laundering and that gambling activities are operated by criminal organisations. This derives from the fact that, despite the general prohibition currently in place, bingo halls, slot machines and jogo do bicho can be easily accessed in Brazil.

iii State control and private enterprise

A general introduction to gambling law in Brazil

Poker and other games of skill, as well as social games, can be operated by private entities. These activities do not require any specific licence.

Horse-race wagering is restricted to non-profit entities that own the racetracks, duly authorised by the Ministry of Agriculture, Livestock and Food Supply. These entities may appoint agents to facilitate wagering on their behalf, and can also hire private suppliers, which are not subject to licensing or any specific regulation.

Until 2020, lotteries could only be state-owned. Caixa was granted the control of the federal lottery as result of Decree No. 50,954 of 14 July 1961, which cancelled all lottery licences granted to the private sector.

Federal and state lottery operators (i.e., Caixa and the state's equivalent entities) could contract suppliers by means of public procurement. There was no specific licence requirement for these suppliers. This traditional framework suffered drastic changes over the past years.

In September 2020, the Supreme Court ruled as unconstitutional the federal monopoly on public services of lottery operations, namely an 'unjustified privilege granted to the Union by a centralised piece of legislation enacted during the Brazilian military regime'.8 Therefore, the federal government still retains the exclusive constitutional competence to legislate on lottery issues, but both the states and the federal government share the right to operate and offer lottery products.

This ruling has a direct impact on sports betting, as all states will be able to operate sports betting within their territories. In this scenario, the federal government will be able to issue federal licences that will allow the licensees to operate both online and retail businesses all over the national territory, regardless of any state licence.

Each state will be able to operate sports betting within its borders, directly or with a private operator as a partner. Since making a state lottery available outside the respective state territory is a criminal misdemeanour in Brazil, there will be a lot of discussion on how the place where the online bet is made will be determined.

At the moment, almost 20 out of the 27 states and the Distrito Federal have initiated their political and legislative proceedings aiming at creating their own lotteries or modernising and enhancing their lottery products. In the vast majority of cases, those political movements and legal transformations involve partnering with the private sector to turn lotteries more effective and profitable.

Additionally, after unsuccessful attempts to delegate one of the CAIXA's lottery modalities to private operators, the federal government is in the process of organising another public bid for privatisation of instantaneous lotteries (sweepstakes).

iv Territorial issues

Starting in 1993, when bingo and slot machines were legalised, the state lotteries started to develop new gaming products, issuing authorisations for bingo venues, slot machine parlours and even online gaming based on state laws that allowed these activities in the territory of each state. Only in 2007 did the Brazilian Supreme Court definitely rule that states and municipalities could not legislate on gambling. For this purpose, a binding decision (binding decision No. 2) that has to be followed by lower courts established that: 'Any state or district law or legislative act that regulates raffles and consortiums, including bingo and lotteries, is unconstitutional.'

In 2009, however, when faced by a claim that the State Lottery of Rio de Janeiro's expansion towards keno-style gaming was unconstitutional,9 one judge from the same Supreme Court declared that state lottery regulations enacted before binding decision No. 2 of 6 June 2007 are valid.

v Offshore gambling

A legal loophole currently allows offshore operators to offer their gambling products to Brazilian citizens. One of the general rules about contracts in the Brazilian Law is that a contract by and between absent parties is deemed executed in the place of the proponent. This is set forth by Article 9, Paragraph 2 of the Law of Introduction to the Brazilian Rules of Law (Decree-Law No. 4,657 of 4 September 1942) and repeated in Article 435 of the Brazilian Civil Code.

As a consequence, if an offshore operator's website is hosted in another jurisdiction where gambling is authorised, the contract between the Brazilian client and that operator is valid and subject to the law of operator's jurisdiction. This has some legal consequences in Brazil regarding consumer and data protection laws and unauthorised transborder financial transactions, the latter with potential criminal aspects. So far, however, there have not been any attempts by the Brazilian government to bring any action against foreign operators.

Legal and regulatory framework

i Legislation and jurisprudence

According to the Misdemeanour Law, games of chance are prohibited in Brazil. Any form of gambling activity that has not been expressly legally authorised may be considered illegal under the scope of the Act and, therefore, anyone carrying out such activity may be prosecuted. Decree Law No. 50,954 of 14 July 1961 establishes Caixa's monopoly on lotteries, and Law No. 7,291 of 19 December 1984 and Decree Law No. 96,993 of 17 October 1988 regulate horse-race betting.

In the southern state of Rio Grande do Sul, an appellate court decision has stated that gambling is not prohibited because the prohibition set out in Article 50 of the Misdemeanour Law would be unconstitutional. The public attorney has appealed that decision and now the case is pending judgment by the Brazilian Supreme Court,10 where it has been granted 'general repercussion' effects, which means that the decision of this case will be binding to all other similar cases in the country. Until the judgment is resumed, which is expected for April 2022, the effects of the prior decision from the lower court remain in force, and all prosecution cases related to Article 50 are halted until the Brazilian Supreme Court renders a final opinion.

In March 2022, the Appellate Court of the State of São Paulo reached a similar conclusion by adopting the same rationale of its Rio Grande do Sul sister court, and dismissed accusations against an individual suspect of hosting games of chance.

ii The regulator

SECAP is in charge of regulating lottery activities in Brazil. State lotteries must comply with the gaming standards set forth by the Secretariat and may not create new gaming products.

The Ministry of Agriculture, Livestock and Food Supply is the entity responsible for the regulation of horse racing.

Poker, recognised as a sport by the former Ministry of Sports (currently a division of the Ministry of Citizenship), is not regulated. Neither are social games nor any other kind of games of skill.

The free distribution of prizes is regulated by the Ministry of Economy and is subject to previous authorisation by Caixa or by the Secretariat, depending on the operator.

iii Remote and land-based gambling

There is no distinction between online gambling and bricks-and-mortar gambling for horse racing, provided that the general wagering plan expressly states the possibility of both. For lotteries, Caixa does not allow their points of sale to accept remote bets but allows online bets to CAIXA's banking clients.

iv Land-based gambling

Land-based gambling in Brazil is restricted. Caixa has licensed over 13,000 lottery points of sale that are privately operated with permission (small venues that also operate as bank assistants, accepting payments of general services bills). Jockey clubs have their own agencies and agents (around 200), that are authorised to accept wagers on local and international races. Poker has become very popular in Brazil, and there are many poker clubs open in the largest cities.

Law No 13,756/2018, which introduced fixed-odds sports betting as a lottery modality, sets forth that it can be offered by both land-based and online operators. Further, Decree No. 9,327/2018, which regulates Lotex, defines physical bets as those made by the client upon the purchase of a printed ticket and virtual bets as those made by the client via electronic channels.

The fixed-odds betting lottery method was created by Law 13,756/2018, in the form of an exclusive public service of the Union, which commercial exploitation will take place throughout the national territory. This lottery method's legal definition is a system of bets related to real sports events, in which the prize the bettor can win in the event of a successful outcome is defined at the time the bet is posted.

Land-basedOnline
Types of bets allowedOnly fixed-odds on sports events
RegulatorMinistry of Economy
RegulationTo be issued by the Ministry of Economy in 2022 (considering the term already renewed for additional two years)
LicensingAuthorisation (without tender) or concession (with previous public tender), yet to be defined by the regulation
Number of licencesTo be regulated by the Ministry of Economy
Mandatory payments (calculated on turnover)
Taxation on players' winnings30 per cent withholding tax on each prize over 1,903.98 reais*
Taxation on the operatorVaries between 0.174 per cent and 0.294 per cent of the previous month's payout, according to Annex I of the Law
Other applicable taxesOrdinary corporate taxes:
AdvertisingShall be guided by the best practices of corporate social responsibility, according to regulations yet to be defined
AMLThe operator will have to send information to the Financial Activity Control Council (COAF), according to regulations yet to be defined
* This amount may change yearly and corresponds to the income tax exemption limit for individuals

The Ministry of Economy has the statutory period of up to four years to regulate the fixed-odds betting lottery method. A critical part of the regulation will be the definition of the competition model: whether the number of licences will be limited or unlimited, and as a consequence, if a public tender for licence will take place (in case the number of licences is limited) or if the applicants will only have to pay a licence fee and comply with the regulatory requirements. SECAP, which is in charge of regulating sports betting, has already issued three public consultations on the matter and it is expected that regulation is released within the next months.

v Remote gambling

Brazil's federal legislation does not contain any specific provision related to online gambling. Horse-racing entities already offer bets online in Brazil, and Caixa only offers online betting for their account holders. The majority of the remote gambling activities in Brazil involve offshore operators, mainly sports betting and bingo.

vi Ancillary matters

There are no specifics provisions at the moment.

vii Financial payment mechanisms

There are no specifics provisions at the moment.

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