Brazil regulator issues reporting process for banks on illegal betting

The Secretariat of Prizes and Bets (SPA) has introduced a pivotal ordinance that governs the procedures for payment institutions involved in transactions linked to illegal betting activities.

Effective March 21, Normative Ordinance No. 566 aligns with Article 21 of Law No. 14,790—commonly recognized as Brazil’s federal betting legislation. Initiated in December 2023, this regulation prohibits financial institutions from facilitating or endorsing betting transactions involving operators lacking a federal license to operate within Brazil’s legal online betting framework.

This new ordinance delineates the specific conditions, timelines, and information protocols payment institutions must adhere to when reporting illegal betting activities.

Under the new regulations, financial institutions are mandated to implement comprehensive procedures and controls for identifying illegal betting transactions. Institutions must relay pertinent information to the SPA, including their rationale for the report and the individual’s Individual Taxpayer Registration (CPF) number associated with the suspicious activity.

This information must be submitted to the SPA within 24 hours of identifying such activities. Upon verification of unauthorized gambling transactions, the SPA will inform the payment providers involved, mandating the cessation of their relationship with the offending client engaged in illegal operations.

The SPA will maintain an up-to-date list of authorized operators alongside those whose license applications have been denied or are under scrutiny for facilitating illegal bets. This proactive measure aims to enhance market integrity and protect licensed operators.

Non-compliance with the ordinance carries significant penalties. Violators may face fines as stipulated in Normative Ordinance No. 1,225, which outlines the framework for monitoring and inspection, as well as Normative Ordinance No. 1,233. The SPA is authorized to impose fines ranging from 0.1% to 20% of the proceeds, with a maximum penalty ceiling of BRL 2 billion (approximately £271.5 million/€323.9 million/$351.7 million).

Payment Blocking of Illegal Betting in Brazil

Since the launch of Brazil’s regulated online betting market on January 1, the illegal betting sector presents substantial challenges for licensed operators. They contend that illegal entities, which evade taxation and regulatory compliance, create an environment of unfair competition.

Addressing these challenges, Anatel president Carlos Baigorri has characterized efforts to impede illegal domains as “like mopping up ice.” There is a consensus within the industry that instituting payment blocking is a markedly more effective strategy for curtailing black market activities.

The regulator has specifically prohibited gambling transactions conducted through Pix, a widely utilized instant payment service governed by the Central Bank. This prohibition is seen as a critical step in safeguarding the integrity of the legal betting market.

Ari Celia, director at Pay4Fun, previously expressed to iGB that such measures would significantly restrict black market operations. “If any commercial bank is alerted by the Central Bank about a client or business engaging with illegal sites, they will promptly shut down that account,” Celia explained. “Failure to do so could expose them to substantial fines, creating a strong incentive for compliance. Therefore, once notified, banks in Brazil have no incentive to process Pix transactions linked to illegal activities.”

Through these robust measures, the Brazilian government aims to reinforce the legal betting framework, enhance market integrity, and protect consumers and licensed operators from the adverse impacts of illegal betting practices.