A general introduction to gambling law in Brazil

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Introduction

Over the past few years, Brazil has witnessed a notable shift towards increased regulation of the gambling industry, particularly with the emergence of sports betting and online gaming. This departure from a long-standing tradition of gambling prohibition, which traces its roots back to the 1940s, marks a significant development in Brazil's regulatory landscape. Initially, legislation permitted only state-owned lotteries and horse-race betting. Briefly in the 1990s, bingo and slot machines were legalised, but they faced prohibition in the mid-2000s.

The term 'game' is a contract type expressly named but not defined by the Civil Code. Its definition is provided by jurisprudence. Luiz da Cunha Gonçalves² defines a game contract as 'a commitment, agreed as a pastime or in desire of money, between two or more individuals, in which each player agrees to pay a certain sum of cash or something else to the other parties if he or she loses, based on some future event, implementation of which depends, at least in part, on the activity of the players'.

Clóvis Beviláqua,³ who drafted the original 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 Filho⁴ 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 make 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 (generally with monetary content) to the benefit of the party whose opinion prevails. Hence, in the bet, there is no 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 or 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 developed through jurisprudence and are not expressly set out by law, although they are widely accepted and applied by the courts.

Games of chance are defined by Article 50 of Decree-Law No. 3,688 of 3 October 1941 (the Criminal Misdemeanour Law) as:

1. a game in which winning or losing depends exclusively or principally on chance;
2. bets on horse races outside the racecourse or other authorised venues; and
3. bets on any other sport competition.

A public place is defined as:

1. a private house in which games of chance are held, when those who usually take part are not members of the family that live at 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 are held; and
4. an establishment intended for the operation of games of chance, even if its purpose is disguised.

Unregulated games of chance are treated as misdemeanours, which are recognised by law as offences punishable by minor penalties.⁵ In other words, a misdemeanour is a less serious offence than a criminal violation of Brazilian law. The purpose of using the term 'misdemeanour' is to implement 'moral policing', which, according to Professor Humberto José da Nova, includes 'safeguarding morality' 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'.⁶

In contrast, 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 Criminal Misdemeanour Law as the operation of payment of prizes depending on the result of a draw of tickets, lists, coupons, vouchers, signs, symbols or similar means. Pool betting, known as bolão, is overseen by Caixa, the competent state operator and regulator, which allows individuals to form a group by choosing the same numbers under one bet registered at any of the 13,000 lottery terminals across the country. Upon being registered in the system, the bet generates a receipt for each participant, who, if successful, can redeem their prize individually, proportionately to their stake in the bet. The player can also acquire shares in pools organised by the lottery houses, in which case each player may pay an additional service fee of up to 35 per cent of the share quota value, at the lottery house's discretion. To date, online pool betting has not been permitted.

Article 51 of the Criminal Misdemeanour Law also 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 (animal game), which is similar to a lottery, is also prohibited.

Horse-race betting is governed by Law No. 7,291 of 19 December 1984 (Law No. 7,291/1984), and Decree No. 96,993 of 17 October 1988 (Decree No. 96,993/1988), which regulates Law No. 7,291/1984.

Contest regulation is subject to federal jurisdiction in Brazil and, therefore, receives equal legal treatment in all 26 states and the Federal District. In Brazil, a contest that is held to promote the sale of products or to promote brands is deemed to be a prize promotion, subject to Law No. 5,768/1971, Decree No. 70,951/1972, Law No. 13,756/2018 and Law No. 14,790/2023.

On 29 December 2023, President Luiz Inácio Lula da Silva signed into law Bill of Law No. 3,626/2023, transforming it into Law No. 14,790/2023. This law regulates fixed-odds betting operations (fixed-odds betting), which were already legalised by Law No. 13,756/2018. Additionally, it governs prize promotion and authorises the operation of online games of chance. This law introduces two new concepts in this regard:

1. Online game: electronic channel that enables the virtual bet on a game in which the result is determined by the outcome of a random future event, from a random generator of numbers, symbols, figures or objects defined in the rules system. This category, therefore, encompasses online games of chance.
2. Online virtual gaming event: event, competition or act of online gambling whose outcome is unknown at the time of betting

It has yet to be defined whether betting on the results of lottery draws, including on the national lottery, will be permitted under this concept of online games. It is expected that this will be specifically addressed in the forthcoming ordinances to be published by the Ministry of Finance.

Fantasy games are not included in the definition of fixed-odds betting nor in the concept of commercial promotion and thereby are not subject to prior authorisation of the Ministry of Finance. However, they are defined by Law No. 14,790/2023 as electronic sports in which disputes occur in a virtual environment based on the performance of real people, in which (1) the virtual teams are composed of at least two real people and the result is based on their skill in performance; (2) rules are pre-established; (3) the prize does not depend on the number of participants; and (4) results are not obtained from only single-person activity in a real competition.

As a rule, gambling has been prohibited in Brazil since 1946, when all remaining 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 'by the sweat of your brow shall you eat your bread', led to gambling being viewed negatively. However, this belief is no longer socially widespread in Brazil.

There is also the traditional old-fashioned 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.

Conversely, the legalisation of sports betting in 2018 and the recent enactment of Law No. 14,790/2023 permitting online gaming have substantial implications for the burgeoning Brazilian gambling market. Granting exceptions for gambling authorisation is likely to trigger further expansion and stimulate approval for additional gambling modalities in the country.

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 betting is restricted to non-profit entities that own the racecourses, duly authorised by the Ministry of Agriculture, Livestock and Food Supply. These entities may appoint agents to facilitate betting 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 control of the federal lottery as result of Decree No. 50,954 of 14 July 1961, which cancelled all private sector lottery licences.

Traditionally, federal and state lottery operators, such as Caixa and equivalent state entities, engaged suppliers through public procurement without specific licensing requirements for these suppliers. However, significant changes have occurred in this framework in recent years, particularly following the enactment of Law No. 13,756/2018 and, more recently, Law No. 14,790/2023. These laws have allowed for the operation of fixed-odds betting as a lottery mode and facilitated partnership with private operators specifically in the realm of this new gaming mode.

Multi-level regulation between the states and the Union was initially made possible by a judicial decision, which has now been duly assimilated into law. In September 2020, the Supreme Court declared the federal monopoly on public lottery operations unconstitutional, describing it as an 'unjustified privilege granted to the Union by centralised legislation enacted during the Brazilian military regime'.⁷ As a result, while the federal government retains exclusive constitutional authority to legislate on lottery matters, both states and the federal government now have the right to operate and offer lottery products.

Consequently, all states are now empowered to operate fixed-odds betting within their borders, directly or with a private operator as a partner. Some states, such as Minas Gerais, Rio de Janeiro and Paraná, have already begun offering this service to the public. Concurrently, the federal government has provided general guidance on the issuance of federal licences, which will soon allow licensees to operate both online and retail businesses nationwide, irrespective of state licensing requirements.

At the moment, almost all Brazilian states have initiated political and legislative processes to create their own lotteries or to modernise and enhance their existing lottery products. In the vast majority of cases, these political movements and legal transformations involve partnering with the private sector to make lotteries more effective and profitable.

In addition, after unsuccessful attempts to privatise Caixa lottery subsidiary Lotex, the federal government is in the process of organising another public tender for the sweepstakes business with the aim of forging partnerships with private companies.

With the emergence of a new era of gambling regulation in Brazil, the collaboration between private entities and the public sector seems to be flourishing. Currently, there are no restrictions in place to hinder competition from private actors in this market; instead, it is at the government's discretion to pursue it.

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. It was only in 2007 that the Supreme Federal Court ruled definitively, in a decision binding on lower courts (Binding Decision No. 2), that states and municipalities could not legislate on gambling: 'Any state or district law or legislative act that regulates raffles and consortiums, including bingo and lotteries, is unconstitutional'.⁸

In 2009, however, when faced by a claim that the expansion of the Rio de Janeiro state lottery into keno-style gaming was unconstitutional, one judge from the same Supreme Court declared that state lottery regulations enacted before Binding Decision No. 2 remain valid.

In 2020, the Supreme Court ruled that states were permitted to legislate on lotteries, provided they adhered to the 'regulatory framework' established by the Union. With Law No. 13,756/2018 already delineating a general framework for the development of fixed-odds sports betting, several states (and even municipalities) subsequently enacted laws or decrees to establish basic rules for conducting such activities. This regulatory landscape has been further reinforced by the enactment of Law No. 14,790/2023, which acknowledges the purported compatibility between national and subnational legislation. In cases where regional legislation conflicts with recent national legislation, adjustments are expected to be made. Otherwise, such disputes may be resolved by judicial means.

Currently, neither local nor national laws enacted to date have granted preferential treatment in terms of gambling revenues to specific groups or populations.

On criminal grounds, 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 to be executed in the place of the proposer. This is set out in Article 9, Section 2 of the Introductory Law on the Rules of Brazilian Law and repeated in Article 435 of the 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 the operator's jurisdiction.

However, the ramifications of offering offshore gambling to Brazilians without a regular licence in Brazil have undergone significant changes with the enactment of Law No. 14,790/2023. This law has far-reaching implications for unauthorised offshore operations in the country, including the prohibition of advertising on Brazilian websites, sponsoring Brazilian sporting entities and the exclusion from promptly obtaining a licence to conduct sports betting or online gaming in the future. In their turn, internet service providers and internet application providers must, upon notification from the regulatory agency, appropriately block websites or remove applications related to unauthorised fixed-odds betting.

To date, there have been no attempts by the government to bring an action against foreign operators at the national level, but the federal government has clearly mentioned that unauthorised gambling offers will not be tolerated in the future as federal licences become available.

Also, payment arrangement issuers, as well as financial and payment institutions, are prohibited from allowing transactions or processing operations for legal entities that have not received the authorisation to operate fixed-odds betting. This prohibition shall come into effect within a period defined by the Ministry of Finance, not less than 90 days from the start of the accreditation of fixed-odds betting operators.

The administrative sanctioning process will be initiated in cases where there are indications of a legal breach of legislation. The respective procedure will follow the content of regulations to be issued by the Ministry of Finance in the exercise of the powers conferred upon it by Section 3, Article 29 of Law No. 13,756/2018.