Brazil – A Regulatory Report GamblingCompliance Research Team

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Brazil – A Regulatory Report

Author: Francois Peglau, GamblingCompliance Ltd. © Publication Date: May 28, 2010 Next Review Date: October 13, 2010 Publication URL: http://www.gamblingcompliance.com/node/42846

Contents 1. Executive Summary ............................................................................................................................. 3

2. Historical Development of Gambling .................................................................................................. 4

3. The Gaming Market Today .................................................................................................................. 6

3.1 Criminal Contravention Act ........................................................................................................... 6

4. Lotteries .............................................................................................................................................. 7

4.1 Statistics ........................................................................................................................................ 7

Supreme Court Decisions with regards to lotteries ............................................................................ 9

The Lottery Bill 472/2007 ................................................................................................................. 10

5. Bingo and Slot Machines ................................................................................................................... 10

5.1 The Bingo & Slot Machines Bill No. 270/03 ................................................................................ 11

6. Casinos .............................................................................................................................................. 13

7. Horse Racetracks ............................................................................................................................... 14

8. Online gambling ................................................................................................................................ 15

9. Money Laundering ............................................................................................................................ 16

10. Legislation ....................................................................................................................................... 17

11. Regulator and Operator Contact Details......................................................................................... 18

12. End Notes ........................................................................................................................................ 18

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Only lottery games and horse race betting are legal in Brazil. However, this framework could change as a bill that would legalise bingo and electronic bingo machines is set to be voted on in the near future.

1. Executive Summary

With a total area of 8,514,877 square kilometres and a population of 191m1, Brazil is the largest and most populated country in Latin America. The country is a federation composed of twenty-six states (estados), one federal district (Distrito Federal) and 5,564 municipalities. The Brazilian government’s official internet monitoring agency – the Comitê Gestor da Internet (CGI) – estimated there to be 60m internet users in the country in 2008, representing an internet penetration rate of 34 percent.

Given its huge economic potential and growing population, Brazil has often been tagged with the label of "country of the future" and is undeniably considered to be an emerging world economic power. However, poverty, corruption and violence remain prevalent throughout the country. For most of the twentieth century, almost all gambling activities were prohibited in Brazil. However, at the start of the 1990s, the Government changed its position and allowed the commercial exploitation of bingo and slot machines as a way of funding sport activities, starting a ten year period of gaming expansion. The honeymoon period between the gaming operators and the government ended in 2004 after a series of political scandals, which tainted both government officials and leading gaming entrepreneurs. This situation almost caused the total prohibition of all bingo and slot machine activities in the country. The political storm over gambling is not over. Bingo and slot machines continue to work in Brazil without a clear regulatory framework and this industry is under strong pressure from the government and the Federal Courts. Despite the undoubted potential of the Brazilian market, foreign operators have mostly remained out of Brazil, waiting for a more favourable political environment and clearer regulation to be enacted. On the other hand, scandals related to the gaming industry have slowed the Government's movement toward the liberalisation of gaming laws. However, recent developments are announcing major changes in the gambling industry in the country. Legislative efforts to re-authorize bingo and slot machine gaming have been gathering momentum since the beginning of 2010. The Brazilian Chamber of Deputies is expected to vote regulation that will legalise bingo and gaming devices in Brazil. However, the bill still needs to be scheduled for a vote. While some observers remain optimistic that this legislation will be passed, the odds of new gaming legislation seeing the light before the October 2010 presidential election are diminishing every day.

1 Instituto Brasileiro de Geografia e Estatistica, http://www.ibge.gov.br, July 1

st, 2009

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The anticipated opening of the Brazilian gambling market could supersede the rollout of slot machines in Mexico as the most significant opportunity for growth in Latin America, executives said at November 2009 Global Gaming Expo (G2E) in Las Vegas.2 Also, the Brazilian state lottery sector has been identified as a potential growth market by international lottery technology suppliers such as Intralot, which has inked deals with Rio de Janeiro’s LOTERJ and the Minais Gerais lottery3 . Moreover, in a decision from December 17,

2009, Brazil’s Supreme Court gave state lotteries the right to expand their offerings to compete with the national lottery products offered by the Caixa Econômica Federal public bank. Judge Ellen Gracie refused to prosecute a legal complaint against LOTERJ, the state lottery in Rio de Janeiro, following claims that the lottery’s expansion towards keno-style gaming is unconstitutional.4

2. Historical Development of Gambling

While today Brazil is seen as a closed market for gambling, this was not always the case. During the first half of twentieth century, most gambling activities were allowed. Decree Law No. 845 of November 12, 1938 allowed federal and state governments to grant gaming licence to private operators. Casinos and bingo halls proliferated in the states of Rio de Janeiro, Sao Paulo and Minas

2 GamblingCompliance, ‘Gaming Firms Prepare To Samba Into Brazilian Market’ (November 25, 2009),

www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/40456 > 3 GamblingCompliance, ‘Intralot Inks Rio De Janeiro Lottery Deal’ (September 23, 2008),

www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/19672 > 4 GamblingCompliance, ‘Brazil’s Supreme Court Clears State Lotteries For Expansion’ (December 23, 2009),

www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/40788 >

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Gerais. However, in 1946 President Eurico Gaspar Dutra enacted Decree Law 9215 nullifying all gaming licences granted in the past by the federal, state or municipal government.

Brazilian historian Milton Teixeirai describes the sentiment of the last day of legal casino gaming in Brazil:

"...in a solemn voice, holding back the tears that sprang to his eyes, Jose Caribe da Rocha, manager of the Copacabana Palace casino in Rio de Janeiro, announced the last game of roulette in Brazilian casinos, at 11 o'clock on the night of April 30th, 1946, ending a time of glamour, luxury and legends. After the announcement, the tears he had been holding back began to flow, expressing on his face the sentiments of the thousands of guests and more than 40 thousand workers in the some 70 casinos that existed in Brazil at the time".

Decree Law 9215 brought back the blanket ban on gaming established by the 1941 Criminal Contraventions Act and as a result only lottery games run by the federal or provincial government were allowed. The management of lotteries was delegated in 1961 to the Caixa Economica Federal (Federal Savings and Loan Bank), however some state lotteries were still permitted.

This general prohibition was temporally lifted in 1990s with the enactment of the "Zico" law and the "Pele" law. These laws allowed first Brazilian state governments and then Caixa Econômica to authorise the operation of land-based bingo parlours in order to help fund the development of Brazilian sport. São Paulo became the first Brazilian state to issue licences for bingo in 1994, and by 1995 there were hundreds of venues throughout the country.

But neither the 1993 Zico Law nor its 1998 follow-up established definitive legal clarity over the licensing process or over the legality of the electronic gaming machines that became prevalent in many bingo parlours. The situation was further complicated towards the end of the decade when state governments including those in Rio de Janeiro, Paraná and Mato Grosso passed their own bingo regulations and continued to issue state licences to operators in apparent contravention of provisions contained in the 1998 Pele Law.

Several attempts were made by the federal government to rectify the situation by re-imposing the blanket ban on gaming as suggested by the Criminal Contravention Act. Law 9981 from 2001 (Maguito Law) ruled that all existing bingo permits would expire on December 31, 2001 – but the enforced shutdown of bingo venues failed to materialise after operators with state-issued licences obtained court injunctions to allow them to continue in operation beyond the expiry date. Four years after the passage of Law no. 9981/2000, a presidential decree was introduced by President Lula that would have declared "null" all bingo licences issued by Caixa Economica, or by state or municipal governments. It would also have established a daily fine of around US$25,000 for the illegal operation of bingo "in any form", including via electronic bingo machines.

Lula's decree failed to gain support in the Brazilian Senate, however. This was largely due to the fact that his move to prohibit bingo games had led to intense public protests from bingo hall workers throughout the country.

It took a Supreme Court opinion from May 2007 to finally bring about the shutdown of the Brazilian bingo sector. In its opinion, a panel of Supreme Court judges declared unconstitutional, "any state or district law or regulatory act that addresses competitions or draws, including bingos and lotteries."

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3. The Gaming Market Today

Currently, there is no federal legislation expressly dealing with bingo and slot machine operations. The government considers that as bingo regulations were abolished by the Maguito Law, bingo and slot machines are prohibited under the terms of the Criminal Contravention Act. On the other hand, bingo operators contend that the Zico and Pele Laws took bingo and slot machine operations out of the scope of the Criminal Contravention Act and, therefore, even though bingo and slot machines are not regulated activities, they are not forbidden.

After the 2007 Supreme Court decision, bingo and slot machine operators cannot rely upon state-level regulations that are still in place as in the long run they will surely be ruled unconstitutional. Consequently, the government has started an aggressive campaign against illegal bingo parlours and state officers that conceal and protect such activities. As a result of this, with the exception of four bingo halls that are still involved in litigation in state courts, all bingo halls have been closed in Brazil. Most previous bingo operators such as Brabingo and Eibe Games have become manufacturers and now sell their bingo and slot machines to other Latin American markets such as Mexico and Argentina.

However, legislative efforts to reauthorise bingo and slot machines have grown through 2009 as a bill that could legalize these activities (Bill No. 270/03) could be passed before October 2010. This new legislation would take licensed bingo and electronic gaming machines outside of the scope of a general prohibition on gambling contained in Brazil’s 1947 Criminal Contravention Act. But for now, the only gambling activities that are considered legal in Brazil are lottery games operated by Caixa Econômica and state governments, as well as horse racing. Caixa's lottery games collected R$ 5.7bn Brazilian real (US$ 3.2bn) in 2008, a 10.5 increase from the amounts collected in 2007 (R$ 5.191 Brazilian real). Sales reached record levels in 2009 as Caixa’s games collected R$ 7.3bn Brazilian real (approx. US$ 3.9bn), a 28.3 percent increase from the amounts collected in 20085. While there is no clear data with regards to the amounts collected by provincial lotteries, it is believed that these entities regularly collected revenues for $1bn Brazilian real. According Jose Magnho, editor of Boletin Novidades Lotericas, Brazil's gaming market is worth R$ 20bn Brazilian real.

3.1 Criminal Contravention Act No analysis of the Brazilian gaming market and its regulation is complete without mentioning the Criminal Contravention Act 1941 (Law Decree No. 3.688). This law rules that the offering of games of chance is prohibited and criminalized in Brazil. Article 50 of the Act rules that establishing or operating games of chance in a public place is subject to imprisonment for three months to one year. The Act defines "games of chance" as (i) a game in which winning or losing depends exclusively or principally on luck, (ii) bets on horses outside the racetrack or other places where such races are authorized and (iii) bets on any sport competition.

Public place is defined as:

5 Source: http://www.magocom.com.br/bnl/ver_not.asp?noticia=1353

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1. A private house in which games of chance are held, when those who habitually take part are not members of the family that occupies the house;

2. A hotel or collective residence where the guests or residents are offered games of chance;

3. The headquarters or premises of a company or association where games of chance;

4. An establishment intended for the operation of games of chance, even if its purpose is disguised.

Article 51 of the law prohibits the operation or promotion of unauthorized lottery games in Brazil - including the distribution of foreign lottery tickets in the country. The Brazilian lottery-type numbers games known as 'jogos de bicho' are also prohibited.

The Criminal Contravention Act has not being abolished. Therefore, any form of gaming activity that has not been regulated in an independent piece of legislation may be considered under the scope of the Act and therefore prosecuted.

4. Lotteries

4.1 Statistics Lotteries are operated by the Caixa Econômica Federal and the states lotteries.

The Caixa Econômica Federal (La Caixa), Brazil's largest state-owned public bank, controls the national lottery and nine other federal lotteries. La Caixa obtained the control of the lotteries as a result of the 1961 Decree No. 50.954, which withdrew all the concessions and lottery licences that had been granted to the private sector.

1967's Law Decree No. 204 created the first national lottery (Federal Lottery), giving the administration and the monopoly of this form of gaming activity to La Caixa. In the last years, the Caixa has started operating new gaming forms such as instant lotteries (Instantanea), sport betting (Lotogol) and Timemania.

Games operated by Caixa collected R$ 5.7bn Brazilian real (US$ 3.2bn) in 2008.

The games operated by the Caixa Economica are:

Name Type of Game

Mega-Sena Lotto type game; plays twice a week, six numbers, pays jackpot to four and five hits.

Timemania Runs once a week; ten numbers to choose from. Jackpot is paid for three to seven hits.

Quina Lotto type game; plays six days a week, pays with three, four or five hits.

Lotomania Lotto type game; plays once a week, 100 numbers available to players.

Dupla-Sena 50 numbers available to choose from, pays for six, five or four hits, tickets are valid for two games. However, numbers cannot be mixed from one game to another.

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Federal The most traditional Brazilian lottery game. Plays twice a week, and a major game each month with a higher prize.

Instantanea Scratch Lottery Game.

Loteca Sports betting, only Brazilian football league.

Lotogol Sports betting, only Brazilian league, bets are placed over five matches. Pays for five, four and three correct results.

Lotofacil Lotto type, 25 numbers to choose from.

Source: Caixa Economica

In 2009 sales reached record levels as Caixa’s games collected R$ 7.3bn Brazilian real (approx. US$ 3.9bn), a 28.3 percent increase from the amounts collected in 2008. Wellington Moreira Franco, vice-president of lottery games in Caixa forecasted that sales will increase in 10 percent in 2010 to rise to an overall gaming collection of R$8.1bn Brazilian real.

In the first quarter of 2010 Caixa’s lottery games collected R$ 1.88bn Brazilian Real (US$1bn), a 30 percent increase compared with the same period in 2009. According to Moreira Franco Vice,-president of the Government and Lottery Fund, this increase is the result of the implementation of changes in the operation of the lotteries operated by Caixa. Mega-Sena was the lottery game that reported the highest collection in this period as a result of a jackpot prize paid in February 2010 for more than US$40m. However, it was the Quina game which increased the most due to changes introduced in October 2009 that allowed the lottery to run six days a week.6

In addition to Caixa, Brazil's 26 states are authorized to run their own state lotteries (of which 17 do so). Some of these lotteries are:

-Loteria de Paraíba-Lotep

-Loteria de Rondonia- Lotoro

- Loteria de Ceará- Lotece

- Loteria do Pará

- Loteria de Rio de Janeiro- Loterj (Intralot )

- Loteria do Rio Grande do Sul- Lotergs

- Loteria Paulista

- Loteria Social de Alagoas

- Servicio de Loteria do Paraná

- Loteria de Minas Gerais

6 Source: http://www1.caixa.gov.br/imprensa/imprensa_release.asp?codigo=6610769&tipo_noticia=

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In an interview given in February 2009, Roberto Derzie, Superintendent in Lottery and Games in Caixa, this company was already evaluating the possibility of offering their products in the internet. "We have a commission working in this issue and researching models that have been used in the world in order to establish which one adjust the better to our necessities" commented Derzie. However, no progress with regard to this matter was made in 2009.

In January 2010 Caixa announced that games such as Mega-Sena will be offered in the internet in the near future. The new commercialisation channel will be introduced in the second semester of 2010.

While Caixa is not currently commercialising its products through the internet, private companies such as loteriasbrasil.com.br are offering some of Caixa’s games through interactive media. Loteriasbrasil.com does not have an agreement with Caixa and the company purchases the products on the basis of a mandate agreement with punters.

Intralot has been entering into technology provider agreements with some state Brazilian lotteries. In 2008, Intralot signed a deal with Rio de Janeiro’s LOTERJ. In March 2010 the State of Minas Gerais signed with Intralot a new agreement for the implementation of five new lottery games in a period of two years. As part of the agreement Intralot must provide a system that operates online and on real-time and the first game must be on sale in at least 500 shops7.

Supreme Court Decisions with regards to lotteries After the legalisation of bingo and slot machines in 1993, Brazilian state lotteries started to enter in new gaming fields, authorising bingo venues, slot machine parlours and even online gaming under the cover of state laws that allowed such activities in the state. However in 2004 the Supreme Court (the highest court in Brazil) ruled that states are only empowered to regulate matters related to lottery gaming and not other forms of gaming, such as bingo and slot machines which are regulated exclusively by the federal government as this constitute an exclusive federal attribution. Consequently, the Supreme Court has declared that state legislation that purports to deal with gaming other than lotteries is unconstitutional. A more restrictive decision was given by the Supreme Court in 2007. Súmula Vinculante 2 (an obligatory precedent issued by Brazil’s Supreme Court that has to be followed by lower courts) established the following ruling: “It’s unconstitutional any state or district law or legislative act that regulates raffles and consortiums, inclusive bingo and lotteries.” While this decision seemed to have settled the competence issue, a more recent decision enacted by the Supreme Court has raised questions of real scope of the Súmula Vinculante 2. On December 17, 2009, Brazil’s Supreme Federal Tribunal refused to prosecute a legal complaint against the Loteria do Estado do Rio de Janeiro (LOTERJ) (state lottery in Rio de Janeiro) following claims that the lottery’s expansion towards keno-style gaming was unconstitutional. 8

7 Minas Gerais is the second most populated state in Brazil with more than 20m inhabitants, and the four

largest on extension. Its capital is Bello Horizonte, the third most populated city with more than 5m inhabitants.

8 GamblingCompliance, ‘Brazil’s Supreme Court Clears State Lotteries For Expansion’ (December 23, 2009),

www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/40788 >

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Judge Ellen Gracie said that the above mentioned 2004 and 2007 opinion granting exclusive competency over gambling regulation to the federal government in Brasilia could not be applied to shut down state lottery games offered in accordance with local laws that were passed prior to that June 2007 Supreme Court verdict. Brazilian states such as Rio and São Paulo have been operating lotteries for several decades before the 1967 law which granted Caixa the exclusive right to manage national lottery games on behalf of the federal government was enacted. Also, the Judge Gracie dismissed the complaint as the claimant had not exhausted all previous administrative remedies to complaint against LOTERJ acts. The decision has been welcomed as a victory for all Brazilian state lotteries as they consider that it gives them the right to expand their offerings to compete with the national lottery products offered by Caixa.

The Lottery Bill 472/2007 The State Bingo Association and private entrepreneurs are hoping that the Brazilian Congress approves Bill 472/2007 which will set better conditions for the state lottery market. This bill would authorise federal states and the federal district to exploit lotteries in their territories, directly or through third parties. Under the proposed state lottery scheme, CAIXA will have to authorise all new forms of state lottery games. On the other hand, states will not be able to exploit games with similar characteristics to the ones offered by the CAIXA. This could allow state lotteries to license games such as bingo. Yet, according to Alberto Peredne of the Associação Brasileira dos Bingos – ABRABIN, this bill, if approved, could be declared unconstitutional by the Supreme Court, as there is a previous resolution of the Supreme Court signalling that laws dealing with state lotteries are unconstitutional. Currently, this bill has been approved by the Finance and Tax Commission and the Consumer Protection Commission in the Deputy Chamber but still needs to be approved by the Constitution Commission before it is voted by the Chamber.

5. Bingo and Slot Machines

Bingo and slot machines have a very problematic history in Brazil. Even though there are a large number of bingo and slot machine parlours operating, it is not clear whether these activities are forbidden or not in Brazil.

The problem is that at present there is no federal legislation expressly dealing with bingo and slot machine operations. The government considers that bingo and slot machines are prohibited under the terms of the Criminal Contravention Act. On the other hand, bingo operators contend that the laws that originally authorised these gaming forms (the now abolished Zico and Pele Laws) took bingo and slot machine operations out of the scope of the Criminal Contravention Act and, therefore, even when these forms of gaming are not expressly regulated, they are not forbidden.

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After the enactment of the Maguito Law, several bingo halls continued working thanks to court injunctions granted by state and federal judges that prevented police forces from shutting them down. In September 2007, the Supreme Federal Tribunal of Brazil declared unconstitutional a proposal by the state of Rio de Janeiro to regulate the exploitation of bingo activities within the state. The decision was yet another blow to the fragile Brazilian bingo industry as it left Rio de Janeiro’s bingo operators without a regulatory framework to cover their businesses.9 Following this decision confirming the illegality of their activity under existing laws, Brazilian bingo operators have been forced to shut down. Speculation and diverse interpretation regarding the operation of the bingos has not stopped in Brazil even after the 2007 Supreme Tribunal decision. In early March 2010, a decision from a court in Sao Paulo authorised the operation of a bingo venue, restricting its operation to the offering of traditional paper cards game. The decision was based on a legal loopphole, according to the judge, that allows bingo venues to operate provided that no machines were involved in the activity and the venue had been previously authorised by the Caixa Economica. However, the decision was reversed on April 2010 by a federal tribunal under the reasoning that this operation was illegal regardless the type of game that is operated. Several bills have been proposed to deal with the current regulatory void. Some of these proposals would continue to ban bingo and slot machines, others proposed to regulate this activity. The government's attitude towards bingo gaming seems to have changed in the last four years. In March 2008, President Lula instructed Jose Mucio Monteiro, the Secretariat of Institutional Relations, to recommence discussions with bingo workers, operators and MPs in order to reach a legislative solution to the bingo problem. The idea was to review the existing legislative proposals to regulate bingo, currently pending in the Brazilian Chamber of Deputies and in the Senate, and begin negotiations in order to formulate a single legislative project. Industry observers believe that, this time, President Lula has good reasons to finally settle the bingo problem. The legalisation of the bingo industry could be a very popular decision for his Government as this move would secure the existing jobs in the industry and generate thousand of additional jobs. Also, gambling is seen as a new source of public revenue that could help the Government fund sporting activities in the country. According to the Brazilian Bingo Association (Abrabin), bingo activities could increase tax revenues by R$ 2.6 billion Brazilian real and generate 120,000 new jobs in Brazil's economy. The bill that has the most chance of being passed is bill PL 270/03, a proposal that encompasses seven different projects that had been presented by different legislators in different periods of time (Bills No. 2944/04, 3489/2008, 1986/2003, 2999/2004, 3492/2004 and 2429/2007).

5.1 The Bingo & Slot Machines Bill No. 270/03 The draft legislation Bill No. 270/03 re-authorising bingo gaming was passed in September 2009 in the Chamber of Deputies’ constitutional and justice committee (CCJ) by a comfortable margin of 40

9 GamblingCompliance, ‘Order And Progress? A History Of Bingo Regulation In Brazil’ (September 14, 2007),

www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/6819 >

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votes in favour to seven against, having already received the approval of two other committees in recent months.10 The bill has passed on for a debate and vote in the full plenary of the Chamber of Deputies (the lower house of the Brazilian Congress). The Brazilian Chamber of Deputies is thought to vote on the bill when the Congress returns from its break in February. The legislation will then require the approval of the Brazilian Senate after a vote in the full Chamber, however, and its trajectory in the Upper House of Congress will depend on whether Senate leaders similarly decide to put the bill before committees before a full vote. The most important innovations included in the bill are the following:

Licensed bingo and electronic gaming machines outside the scope of a general prohibition on gambling contained in Brazil’s 1947 Criminal Contravention Act.

It would grant Brazil’s Ministry of Finance (Ministerio da Fazenda) the right to license and regulate bingo parlours, which would also be permitted to house electronic bingo machines(‘video-jogos)

A limit of bingo venues will be established according to the number of inhabitants. Cities with less than 500,000 inhabitants will be able to have a one per very 100,000 inhabitants. Cities with more than 500,000 will be able to have one bingo per every 150,000 inhabitants.

All bingo machines would need to be connected to a single central server monitored by the Ministry of Finance, with machines subject to an 80 percent prize payout rate. Also, they will need to previously be tested by the Ministry of Finance.

Licensed operators would be taxed at a rate of 17 percent of total gaming revenues, with tax income earmarked for government health campaigns and the funding of Brazilians sports

The bill sets a minimum number of employees in order to be granted a licence. For example, a venue with more than 300 bingo seats will need to have at least 100 employees.

Credit would not be allowed to gamblers; all the bets must be paid immediately.

Earlier versions of the bill were authorising a limited number of Las Vegas-style casinos but this has been taken out of the draft to focus exclusively on bingo. In a recent interview with Diario de Sao Paulo, President Lula made the following commentaries with regards to the proposed gaming bill: “If you want to legalise bingos, it is necessary to create mechanisms to avoid bingos becoming a source for money laundery and an incentive for illegal activities. I was thinking of giving to Caixa Economica Federal the responsibility for controlling bingo activities. Let’s wait and see how the congress votes. (...) There are a lot of issues to take into account. There is an important sector of society, the pensioners especially, that will always gamble. If we have bingo venues working, under

10

GamblingCompliance, ‘Brazilian Bingo Bill Advances’ (September 18, 2009), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/39661 >

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the control of Caixa, checking that these venues are not used for money laundering purposes, that will be OK for me.11” Some observers remain optimistic that the legislation could be passed ahead of the Brazilian presidential elections scheduled to take place in October 2010. However, as the October deadline approaches the odds for the bill to seeing the light are now diminishing. While there has been a public audience in the chamber to discuss the bill, it seems that the proposal has lost momentum as legislators are now focusing on more urgent legislative proposals. Deputy Aelton Freitas has recently commented that the decision on the return of bingos to Brazil will probably be taken by the next government. As reported by GamblingCompliance, speaking at G2E, Nick Khin, president of the Americas region for Australian-based gaming machine supplier Aristocrat Technologies, agreed that Brazil represented one of the most significant future expansion opportunities for slot machine manufacturers.12

6. Casinos Before 1946 Brazil allowed the operation of casinos. Rio de Janeiro, São Paulo and Minas Gerais were the three states considered as capitals of the Brazilian casino industry, in a time when legendary musical shows were performed in the big saloons of casinos such as the Copacabana Palace, Quitandinha, Atlântico, Urca, Parque Balneário Hotel, and the Grande Hotel de Araxá. However, in 1946 the Brazilian government enacted the Decree-Law No. 9215 annulling all licences, authorisations and concessions previously granted by the federal, state, and municipal governments. This law also expressly returned casino gaming under the scope of the Criminal Contravention Act.

As a result of this, there has been no casino gaming in Brazil since 1946.

International casino operators and the tourism sector have lobbied to see the reintroduction of casino gaming in Brazil and have received support from both the populous, industrialised states of the south (Rio de Janeiro, São Paulo and Minas Gerais) and those that rely heavily on tourism (Bahia, Ceará and Santa Catarina, as well as Rio).

As reported by GamblingCompliance, speaking at the ey! Yogonet conference held alongside SAGSE in Buenos Aires, Carlos Canto, president of the Brazilian Bingo Federation (Febrabingo) lobbying group, suggested that approval of the bingo law (see in the above section) could see Brazil open up to casino resorts in future.13

11

G Bergamin, ‘Lula exclusive: ‘Tenho desespero de pensar em 2011’, http://www.diariosp.com.br, (Accessed May 27, 2010), http://www.diariosp.com.br/Noticias/Dia-a-dia/3437/Lula+exclusivo:+Tenho+desespero+de+pensar+em+2011 12

GamblingCompliance, ‘Gaming Firms Prepare To Samba Into Brazilian Market’ (November 25, 2009), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/40456 > 13

GamblingCompliance, ‘Gaming Firms Prepare To Samba Into Brazilian Market’ (November 25, 2009), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/40456 >

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Unfortunately for the casino industry, while earlier versions of the Bill No. 270/03 have indeed authorised a limited number of Las Vegas-style casinos, these provisions have been taken out of the draft to focus exclusively on bingo.

In February 2010 the Brazilian Chamber of Deputies was reviewing a bill introduced by Deputy Antonio Feijão (Bill 6637/09) that would allow the installation of casino venues in states located within the Brazilian Amazon region. This measure looks to attract leisure tourism, generating more employment opportunities for the locals. According to the draft, the executive will need to establish the criteria for the concession of gaming areas. The concession will be granted for 25 years term, term that could be renovated by the government.

Each state will be able to have a maximum of two gaming areas. Operators will be taxed at 20 percent of their gaming revenues, funds that will be distributed among the state government (30 percent), the municipalities (40 percent), and the federal government (30 percent).

Currently, the draft is being reviewed by the Amazon, Integration and Regional Development Commission.

7. Horse Racetracks Horse track betting has a long tradition in Brazil and has not suffered from the constant legislative uncertainty that other gaming sectors have endured. This activity was not included within the scope of the Criminal Contravention Act, therefore it could be offered legally. Presently, horse racetrack betting is regulated by Law No. 7291 enacted in December 1984 and its 1988 regulation (Decree 96.993).

The organization of horse racetracks and the exploitation of horse betting activities are supervised by the Comissão Coordenadora da Criação do Cavalo Nacional (CCCCN). Therefore, entities interested in exploiting horse betting activities have to apply for an authorisation from the CCCCN.

Bets on turf competitions can only be taken in authorised racetracks, in turf organisations and their authorised branches or in authorised betting agencies. Authorised racetrack bookies may also exploit sweepstakes or other forms of lotteries, if they satisfy the condition established by the CCCCN and the General Secretary.

Betting organisers will have to pay a monthly contribution to the CCCCN established on the basis of the bets taken in the previous monthly period. The contribution's rates are established in a progressive accumulative scale and will vary depending on a Reference Value (RF) published by the CCCCN. The contribution rate scale is the following:

- Bets between 1 to 2,500 RF will be exempted.

- Bets between 2,501 and 3,500 RF will be burden with a 0.5 percent rate.

- Bets between 3,501 and 4,000 RF will be burden with a 1 percent rate.

- Bets over 4,001 RF will be burden with a 1.5 percent rate.

Pari-mutuel wagering used to be only permitted on local races. In 2005, the Ministry of Agriculture issued the Normative Instruction No. 27 authorising betting over international simulcast races. This has allowed the Spanish group Codere to enter into the Brazilian market through 10-year

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exclusivity agreements with some of the main national Jockey Clubs in Brazil. In 2008 Codere ran three sport betting sites (two in Porto Alegre and one in Rio de Janeiro) operating under the Turf Bet & Sport Bar brand. In 2008 Codere obtained revenues for €2.2m but the EBITDA recorded a loss of €2.3m.

Some websites such as www.jcb.com.br take bets over national and international horse racing events.

8. Online gambling

Brazil federal legislation does not contain any provision related to the possibility of providing gambling services through the internet. Government officials understand that in application of the Criminal Contravention Act, these activities are illegal.

Yet, Brazilian authorities have not been able to stop citizens from betting on web services offered from outside Brazil. Several international operators have already established Brazilian-facing websites or enabled Portuguese-language versions of their main gaming sites in order to attract players from the Brazilian market.

One of the most prominent operators in the Brazilian market is Betboo, that offers online sports betting, bingo, poker and casino games via its Brazilian-facing website br.betboo.com. Around 85 percent of Betboo's estimated 3,000 average monthly users are Brazilian. Another example is Sportingbet that has been active in Brazil since around October 2007 and advertise prominently in the country. Online poker such as PokerStars, Full Tilt Poker, 888, and PKR also have Brazilian facing websites and sponsor poker tournaments in the country.

While the few Brazilian statutes that do make reference to gambling only contemplate land-based variants of the activity, there have recently been some moves in Brazil to address wider activities that take place over the internet. For example, the Federal Congress in 2008 approved new legislation (Law 11829/2008) to criminalize the distribution of child pornography via the internet in Brazil. In June 2009, the website of the Congress's Chamber of Deputies also opened a three-month public consultation to discuss the regulation of the internet in general in Brazil, focusing on issues such as data protection, intellectual property and cybercrime.

Two bills have recently been introduced in the Congress to forcibly prohibit online gambling in Brazil via restrictions on payments similar to those enacted under the United States' Unlawful Internet Gambling Enforcement Act of 2006.

The first, introduced in 2007, would apply only to internet sports betting. The bill has yet to pass to any congressional committee, however. Most recently, Brazilian deputies refused to attach it as an amendment to a more general gambling bill that was voted upon in the Chamber of Deputies' finance committee in June 2008 (see section 2.b below).

The second payments bill was introduced in April 2008 by Senator Magno Malta. It would ban the use of Brazilian credit and debit cards for unlawful internet gambling as well as for the purchase of pornographic material involving minors. The bill, PLS 121/08, defines unlawful gambling as "any activity not authorized by Brazilian legislation that consists of betting on games of chance or on the outcome of sporting events taking place in the real world”. PLS 121/08 was taken up by the Senate's consumer protection committee in June 2009.

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It should be noted that Brazil's legislative process can be extremely long-winded, with most draft bills requiring the approval of several congressional committees before full votes in both the Chamber of Deputies and the Senate, and then final authorization from the president.

Legislative projects often take several years to navigate their way through Congress, leaving it highly unlikely that the payments ban established by PLS 121/08 will take effect at any stage in the short-term.

9. Money Laundering The legislative framework to confront money laundering in Brazil is set by 1998's Law 9613. This law establishes the definition of the "money laundering" offence and the measures to combat these activities. This law creates the Council for Financial Activities Control (Conselho de Controle de Atividades Financeiras - COAF). This entity has been established in order to pursue, investigate and sanction any activity related to money laundering crimes. The COAF also issues directives to regulate activities of industries that may facilitate money laundering, such as gambling.1414 According to law 9613, crimes related to money laundering are punished of three to ten years of imprisonment and a fine.1515 Gambling activities in general are not specifically mentioned in the legislation. However, they are mentioned in particular resolutions related to Law No. 9613. Resolution 3 of June 2, 1999, issued by the COAF deals with Lotteries and entities related directly or indirectly with the distribution of any properties (money, real estate or other goods) through lottery games. Those entities must identify all prize winners and keep a register of all prizes with values equal to or higher than R$10,000 (approx. US$ 5,240).1616 The register must include:1717 -The prize description - The prize value - The date that the prize was handed over - The prize winner name - Identification documents (Passport/ID etc.) - Inscription number in the Natural Persons Registry (CPF, taxpayer identification number) Lottery operators must pay special attention to prizes or distributions that may represent serious indications of or be related to the crimes defined in Law No. 9613. The following activities or situations must be reported:

14

Law 9613 of 1998, article 14: “ The Financial Activities Control Council – COAF reporting to the Ministry of Finance is hereby created, for the purpose of regulating, imposing administrative sanctions, receiving, reviewing, and identifying the suspected occurrence of illicit activities under this law, without prejudice to the spheres of authority of other agencies and entities.” 15

Law 9613 of 1998, article 1 16

Resolution 3 of June 2, 1999 issued by the COAF, article 2 17

Resolution 3 of June 2, 1999 issued by the COAF, article 3

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- “A sudden and continued increase in the collection of a certain product, in a particular location or establishment (especially products with a higher probability of winning), followed by an increase in the frequency of prizes for the same location or establishment. - Payments of three or more prizes in values equal to or higher than 800 UFIR (Brazilian Tax Unit Reference) to the same CPF (taxpayer identification number) holder within twelve months. - A sudden increase of high value bets in one particular type of game, with the possibility of covering a significant proportion of the winning combinations. - Other prize distributions that due to the features concerning the parties involved, values, forms of execution, and type of instruments used may indicate or be related to the crimes defined in Law No. 9613”.1818 Resolution 5 of June 2, 1999, (Circular No. 200, of September 9, 2002), sets forth the procedures to be followed by the legal entities that operate bingo and/or similar games. Bingo operators must identify all prize winners and maintain updated records of any delivery and/or payment of prizes with values equal to or higher R$2,000.00 (approx. US$ 1,050). This record must contain the same type of information as described above concerning lottery games.1919 In addition, the record will have to contain a representation that the winner is not related to the sporting entity, to the administrator, or to the operator of the bingo. Operators must report any of the following situations or activities: - “A player bets an amount disproportionate to the prize expectation. - A monthly accumulation of prizes by the same winner, in more than one drawing, of more than R$5,000.00 (approx. US$ 2,620). - A quarterly accumulation of prizes by the same winner, in more than one drawing, of more than R$10,000.00 (approx. US$ 5,240). - An annual accumulation of prizes by the same winner, in more than one drawing, of more than R$30,000.00 (approx US$ 15,700). - The payment of prizes of values higher than the amounts collected. - Situations in which the winner is connected, at the same time, to the sporting entity and to the entity's administrator and/or operator. - Other activities that, due to the features concerning the parties involved, amounts, forms of execution, type of instruments used, or the lack of economic or legal grounds, may indicate or be related to the crimes defined in Law No. 9613.” 2020

10. Legislation

Law No. 9613 or March 3, 1998 on Money Laundering (free translation in English)

Resolution 3 of June 2, 1999 issued by the COAF

Resolution 5 of September 9, 2002 issued by the COAF

18

Resolution 3 of June 2, 1999 issued by the COAF, Annex: List of Suspicious Activities 19

Resolution 3 of June 2, 1999 issued by the COAF, article 3 20

Resolution 5 of June 2, 1999 issued by the COAF, Annex: List of Suspicious Activities

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11. Regulator and Operator Contact Details

Regulator Caixa Economica Federal SBS Quadra 04 - Lotes 3/4 - Ed Sede, 20º andar -70092-900, Brasilia - DF - Brazil -

Ministry of Finance (ministerio da fazenda) Esplanada dos Ministérios, Bloco P - 70048-900, Brasilia – DF – Brazil - (61) 3412-2000 (61) 3412-3000

Conselho de Controle de Atividades Financeiras – Coaf Setor de Autarquias Sul, Quadra 03, Bloco O - 70070-100, Ed. Órgãos Regionais do Ministério da Fazenda - 7º andar – Brasilia – DF – Brazil - (61) 412-4746 (61) 226-0641 Operator The Brazilian Bingo Association

12. End Notes

1 Instituto Brasileiro de Geografia e Estatistica, http://www.ibge.gov.br, July 1st, 2009

2 GamblingCompliance, ‘Gaming Firms Prepare To Samba Into Brazilian Market’ (November 25, 2009), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/40456 >

3 GamblingCompliance, ‘Intralot Inks Rio De Janeiro Lottery Deal’ (September 23, 2008), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/19672 >

4 GamblingCompliance, ‘Brazil’s Supreme Court Clears State Lotteries For Expansion’ (December 23, 2009), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/40788 >

5 Source: http://www.magocom.com.br/bnl/ver_not.asp?noticia=1353

6 Source: http://www1.caixa.gov.br/imprensa/imprensa_release.asp?codigo=6610769&tipo_noticia=

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7 Minas Gerais is the second most populated state in Brazil with more than 20m inhabitants, and the four largest on extension. Its capital is Bello Horizonte, the third most populated city with more than 5m inhabitants.

8 GamblingCompliance, ‘Brazil’s Supreme Court Clears State Lotteries For Expansion’ (December 23, 2009), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/40788 >

9 GamblingCompliance, ‘Order And Progress? A History Of Bingo Regulation In Brazil’ (September 14, 2007), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/6819 >

10 GamblingCompliance, ‘Brazilian Bingo Bill Advances’ (September 18, 2009), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/39661 >

11 G Bergamin, ‘Lula exclusive: ‘Tenho desespero de pensar em 2011’, http://www.diariosp.com.br, (Accessed May 27, 2010), http://www.diariosp.com.br/Noticias/Dia-a-dia/3437/Lula+exclusivo:+Tenho+desespero+de+pensar+em+2011

12 GamblingCompliance, ‘Gaming Firms Prepare To Samba Into Brazilian Market’ (November 25, 2009), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/40456 >

13 GamblingCompliance, ‘Gaming Firms Prepare To Samba Into Brazilian Market’ (November 25, 2009), www.gamblingcompliance.com, (Accessed February 9, 2010), < http://www.gamblingcompliance.com/node/40456 >

14 Law 9613 of 1998, article 14: “ The Financial Activities Control Council – COAF reporting to the Ministry of Finance is hereby created, for the purpose of regulating, imposing administrative sanctions, receiving, reviewing, and identifying the suspected occurrence of illicit activities under this law, without prejudice to the spheres of authority of other agencies and entities.”

15 Law 9613 of 1998, article 1

16 Resolution 3 of June 2, 1999 issued by the COAF, article 2

17 Resolution 3 of June 2, 1999 issued by the COAF, article 3

18 Resolution 3 of June 2, 1999 issued by the COAF, Annex: List of Suspicious Activities

19 Resolution 3 of June 2, 1999 issued by the COAF, article 3

20 Resolution 5 of June 2, 1999 issued by the COAF, Annex: List of Suspicious Activities Gamblingcompliance.com does not intend this article to be interpreted, and thus it should not be interpreted, by any reader as constituting legal advice. Prior to relying on any information contained in this article it is strongly recommended that you obtain independent legal advice. Any reader, or their associated corporate entity, who relies on any information contained in this article does so entirely at their own risk. Any use of this article is restricted by reference to the terms and conditions