Online sports betting has been allowed in Brazil since 2018, when Law 13.756/18 established rules for its operation. The regulation of the law, however, has not yet happened. In practice, despite being legalized, the activity is not inspected.
It is estimated that in Brazil there are more than 500 betting sites based abroad and in tax havens. Still, according to calculations published by the press, we are talking about a market that moves up to R$ 150 billion (US$ 32bn) per year. The 2022 World Cup alone moved around US$ 35 billion (US$ 7.3bn) in the world. The risk? Without preventive and detective control mechanisms, the sector is susceptible to the practice of financial crimes, such as money laundering, fraud, and private corruption.
Even though it is not a new subject, the subject attracted the attention of the general public this year in the wake of the Maximum Penalty Operation, which revealed a match-fixing scandal in football. In this scheme, a group enticed players to combine bets on common bids in matches, such as receiving a yellow card or committing a penalty. Certain of victory, fraudsters placed bets on digital platforms and took their prizes. When the agreement was not fulfilled, the players started to be charged by the criminals.
While the match-fixing scandal has attracted the spotlight, this is just the “tip of the iceberg”. I have been following discussions on the subject and it is clear to me that this is a complex issue that involves much more than a type of fraud or an isolated investigation. What is at stake, in addition to the adoption of control mechanisms and taxation in the sector, is the possibility of using corporate governance, risk management and compliance mechanisms as a means of sustainability and even subsistence of the business model.
Regulation and self-regulation
The regulation intends to define minimum parameters for this market to be a safe and predictable environment for all involved. Among the main points of Bill 854/2023, from May of this year, bookmakers will need to be qualified and have at least one branch in the country, in addition to paying R$ 30 million (US$ 6.25bn) to have a five-year permit.
They will also have to commit to responsible gaming practices, the implementation of anti-money laundering programs, and conscious product advertising. More recently, in May, the Ministry of Finance also announced that it will present a provisional measure which, according to the media, provides for the creation of a secretariat in charge of analyzing the accreditation of companies able to operate here, the volume of bets and the collection of taxes, with estimated values between R$ 3 (US$ 625m) and 6 billion (US$ 1.25bn) already for 2024.
It also discusses the veto of bets made by characters from the sports universe itself, whether they are players, coaches, coaching staff, judges or any person who has access to privileged information. Clear situation of a real conflict of interests.
It is important to make it clear that, being a legal practice since 2018, bookmakers have every right to operate in Brazil. The gap is in the lack of control at the government level, which allows bookmakers to be headquartered in tax havens abroad and, consequently, become a more attractive means for the practice of illegal activities.
Despite this, many of these institutions self-regulate, that is, they implement rules and internal controls regardless of regulatory requirements in order to prevent fraud and financial crimes. After all, when this happens, it is the bookmakers themselves who bear the loss, because the premium paid becomes greater than it should have been if there had been no manipulation.
According to experts in the sector, the most serious companies have robust and autonomous compliance departments to carry out all the registration verification of bettors and closely monitor the path to money. Some of the actions adopted are: validation of CPFs and linking the document to the bank account where the prize was received; prohibition of betting by PEPs (Politically Exposed Persons); monitoring of betting volume and reporting in case of suspicious actions.
Given the lack of regulation in Brazil, and depending on the origin of the bookmaker, compliance with these processes is reported to foreign bodies that grant licenses for these companies to operate and monitor their activities.
The example comes from
The UK is the biggest market for online sports betting. A pioneer in the subject, the country structured the Gambling Act in 2005, a law that governs the performance of companies in the sector and, since then, has been promoting the maturation of the market. Spain and Germany followed in their neighbor's footsteps and also regulated the sector in 2006 and 2012, respectively. So what can we learn from them?
The topic was recently addressed on a panel at the LEC Compliance Congress on sports betting. According to the participants, while discussing the terms of regulation, Brazil has the opportunity to follow the example of the outside in combating irregularities in this industry, since manipulation in sports knows no borders.
Cooperation between various actors based on international control mechanisms is a winning strategy used in Europe against financial crimes that move 120 million euros a year. On its website, the European Union explains that Interpol specialists work with law enforcement authorities to identify links between suspected pranksters and fraudsters in order to identify organized crime groups operating in the region.
As part of this coordinated action, taking England as an example, all persons connected in any way with the Premier League (the highest national football league) are prohibited from placing bets on football on any match taking place in the world. The veto even extends beyond the games. Bidding on any subject related to the topic is prohibited, such as, for example, the transfer of players and the hiring of coaches, all of this in order to avoid suspicions of the use of privileged information.
The determinations are from the Football Association (FA), the entity that controls football there. In addition, the FA clearly guides what should be the posture in the face of a possible conflict situation and warns of punishments for those who offer or accept bribes to take advantage of online sports betting.
Here in Brazil it is also impossible to talk about sports betting without talking about football, a national passion that moves millions, in money and people. Without clear rules, without a culture of integrity in sport, without awareness on the part of multiple agents and without the implementation of robust controls in the internal processes of bookmakers and sports entities, the business model becomes vulnerable and directly affects the unpredictability of game results.
At the national level, there is still much to be done. In February of this year, the MIF (Movement for Integrity in Football) was created, with the aim of promoting good compliance practices in sport, structuring a scenario of integrity inside and outside the pitch. But, unfortunately, adherence is still low. Only four Serie A teams joined the movement: Atlethico Paranaense, Atlético Mineiro, Vasco and São Paulo, the latter being the only one to have a compliance department at the board level.
Where is the GRC area?
Corporate governance (“G”) has everything to do with this theme, as it supports the strategic objectives of an organization by implementing a series of measures that will help the company to follow the intended course and efficiently generate the expected value.
We are talking about aligning the executive staff with the guidelines defined by the Board of Directors, understanding responsibility in decision-making at all levels of hierarchy, and tools (policies, processes and controls) appropriate to the business.
Risk management (“R”), in turn, identifies, deals with, anticipates and monitors situations that may jeopardize the achievement of corporate objectives, whether strategic or procedural. In the betting world, the risk matrix is particularly challenging.
Among the most commonly managed risks in the corporate environment, such as financial, commercial, and cybersecurity risk, is compliance risk (“C”). As it is a critical issue, which involves the prevention, detection and remediation of misconduct that can lead to the attribution of responsibility to the company and negative impacts on the corporate image, raising the status of importance of managing this risk adds value to the main product from the company.
Especially in sports where the link between the club and the fans is strongly based on reputation and emotion, image is a high value asset to be protected. The role of the GRC area, therefore, contributes to increasing confidence in the sector in the betting sector and in sports clubs.
For this reason, it is not surprising to learn that, in the absence of the weight of the law, bookmakers self-regulate with their own compliance departments, making use of data solutions for checking criminal backgrounds, links with PEPs and other red flags that may give rise to suspicions of possible misconduct. After all, while they need to protect the business from fraud that generates operational, reputational and financial losses, bookmakers must also transmit confidence to the player who places bets online.
The regulation may come off the drawing board later this year and the moment is decisive to define the course of the sports betting sector in the country. We are talking about a market in which Brazil is the world leader, reaching around 3.2 billion hits on betting sites, and at least 25% of Brazilians who have smartphones have already invested money in sports betting apps. Consumer interest exists. The product is validated and available on the market.
The potential for financial movement is gigantic. And the risk is proportionally impactful. With these ingredients, I see the GRC area as fundamental support for implementing a control structure that adheres to the business needs in the short, medium and long term, as well as promoting the security and trust that the industry requires.
