Brazil could implement ten-year ‘bad actor’ clause

The Brazilian government has said it may implement a so-called ‘bad actor’ clause, forcing operators which have previously operated illegally within other jurisdictions to declare they have done so.

The new rules would require operators to provide a statement confirming they have “never operated illegally in regulated lottery markets and other betting systems with cash prizes, as issued by the Ministry of Economy or its successor”.

Brazilian law-firm Montgomery & Associados questioned the broadness of the term ‘regulated markets’, claiming that additional clarification from the Brazilian government is required. The firm said what constitutes a regulated market is open to interpretation and could include a significant number of so-called ‘grey’ markets.

The firm added: “Further, since the draft decree refers to ‘illegal’ activity in such regulated market, one would expect that this could give scope for operators to argue that they have a defensible position. That being said, given the vagueness of such wording, it is certainly advisable to seek clarification from the government in this new round of public consultation”.

Brazilian regulators will be given the power to temporarily (for a maximum of 30 days) or permanently suspend operator licences. Regulators could also bar sanctioned or suspended operators from reapplying for a licence for a ten-year period if required.

The consultation paper, which is the third issued in less than three months, also confirmed any operator deemed to be breaching its licence will receive a warning, together with one-off and daily fines up to a maximum of 100% of gross gaming revenue.

Under the proposed standards, operators fined twice for the same offence will automatically have their second fine doubled.

In addition to confirming the sanction regime, the consultation paper confirmed the intended regulations concerning the use of gambling advertising by operators.

Under proposed regulations, all advertising must include warnings concerning problem gambling and all ads must not encourage “socially irresponsible behaviour or lead to financial, social or emotional harm”. In addition, all sports betting adverts featuring children or adolescents are prohibited.

The consultation also outlined the dispersion pattern for the taxes received from operators, of which 99% will be allocated to “to cover the cost and maintenance expenses of the lottery operator and gross prizes,”.

Some of the remaining funds will be allocated to various government departments, while 0.7% of the tax receipts will be paid to Brazilian sports teams for the right to use team branding on operator sites.

As confirmed earlier this month, the Brazilian government will levy a 1% tax on operator turnover, which it estimates to be broadly equivalent to 6% of gross gaming revenue.

All licensed operators will be required to operate AML and counter-terrorism financing policies, regularly training staff and conducting regular monitoring of customer records. In addition, all firms must operate a register of all identity verification documentation and must report all transactions of a value equal to or greater than R$10,000 (£2,000) to the Brazilian financial investigation unit for scrutiny.

Operators and industry stakeholders have until 27 September to respond to the consultation document.