Betting regulations will restrict the black market

Regis Dudena, head of the Secretariat for Prizes and Bets (SPA), is optimistic that Brazil’s enhanced betting regulations will significantly curb the black market, asserting that proactive measures such as IP and Pix blocking will render illegal operations financially unfeasible.

As of January 1st, Brazil embarked on a transformative journey into regulated sports betting with the official launch of its legal online market. The SPA has been entrusted with overseeing compliance and enforcement within this evolving sector.

Despite this promising start, the black market remains a pressing concern for licensed operators who have invested significantly, with the requisite licensing fee amounting to BRL30 million (approximately £3.9 million/€4.7 million/$4.8 million).

Currently, the SPA has issued full licenses to 14 operators, with an additional 52 companies pending final approval. Dudena expressed confidence that the regulatory framework established for 2024 will effectively hinder illegal activities by providing legitimate businesses with a robust advantage.

“The overarching trend indicates that the economic incentives for illegal operations will diminish over time,” Dudena stated in a recent interview with EXAME. “When individuals place bets with licensed bookmakers, they are assured that their rights are protected, their mental and financial well-being is prioritized, and, crucially, that they will receive their winnings.”

“In contrast, engaging with unregulated operators places bettors at risk of financial loss and mental distress, with no guarantee of payouts. We believe that, gradually, the viability of illegal operations will decline due to regulatory actions and market responses.”

Engagement with the Financial Sector: A Crucial Step Forward

Brazil has already initiated several measures to combat the black market effectively.

• Transactions made via Pix with unlicensed operators are being actively blocked. Pix, operated by the Central Bank, is a widely utilized instant payment system in Brazil.
• The National Telecommunications Agency (Anatel) has taken steps to restrict access to illegal betting sites, successfully blocking over 5,200 domains identified by the SPA.

However, as Anatel president Carlos Baigorri noted, these efforts can sometimes resemble “mopping up ice,” as many illegal operations quickly adapt by launching mirror sites. In response, Anatel has entered a cooperation agreement with the SPA to bolster its capabilities in this area.

Dudena emphasized that while IP blocking is a vital tool, it must be complemented by the financial industry’s collaboration. “I wish I could assure you that within two weeks we’d see the end of unauthorized sites, but the reality is that this will be a continuous challenge,” he acknowledged. “New entities will persist, and consistent oversight from the Central Bank is paramount.”

The Ineffectiveness of a Full Ban on Betting in Brazil

As discussions about the potential societal and financial repercussions of online betting heat up in Brazil, Senator Sérgio Petecão introduced Bill 4,031/2024 in October, proposing a ban on online betting. This bill currently awaits the assignment of a rapporteur for review.

The Supreme Federal Court also convened a two-day hearing in November to consider challenges against the constitutionality of betting laws No 14,790/2023 and 13,756/2018.

In spite of these pressures, the regulated market launched, and Dudena is firm in his belief that a complete prohibition would merely redirect players to the black market.

“The role of the Secretariat is not to determine whether the legislation should or should not intervene in this matter,” Dudena explained. “Our responsibility lies in analyzing, monitoring, and, if necessary, providing technical insights on effective strategies.”

“In our view, an outright ban would simply drive demand back to illegal sources. Historical precedents confirm that prohibition strategies often fail,” he added.

Adapting Regulations in the Legal Betting Landscape

As the dialogue regarding betting’s implications in Brazil evolves, a ruling on the constitutionality of existing laws is anticipated in the first half of 2025.

The SPA plans to monitor developments in the newly established legal market for a full year before contemplating any revisions to the regulatory framework, with Dudena underscoring the necessity of adaptability.

“I anticipate that after one year, we will have sufficient data to evaluate the impact of our measures and, if needed, adjust accordingly,” commented Dudena. “We firmly believe that regulation is not static; it must evolve in response to market trends and needs. Only through careful observation and comprehensive data can we make informed decisions moving forward.”

Challenges in License Acquisition: Documentation Issues

Only the 113 applicants who met the initial deadline of August 20 were guaranteed processing of their licensing requests ahead of the market launch.

Of the 52 companies that obtained provisional authorization shortly after launch, many must address specific application deficiencies within a 30-day window to secure permanent licenses.

Dudena disclosed that several applicants failed to submit complete documentation, stating, “Some did not fulfill the requirement of providing all necessary documents; for instance, out of 100 requested documents, some supplied only 20. When prompted to rectify these deficiencies, they did not respond adequately, leading to the dismissal of their cases.”

Furthermore, the SPA declined certain requests based on suitability concerns, collaborating closely with organizations such as the Federal Police and the Federal Revenue Service to ensure due diligence.

Dudena emphasized the SPA’s cautious and methodical approach to licensing: “In instances where there are legitimate reservations, we prefer to withhold authorization. We are under no obligation to grant licenses indiscriminately.”