On December 30, 2023, Federal Law No. 14,790 was published, which establishes guidelines and rules for the exploration of fixed-odds lottery betting, thus regulating the activity of betting companies in Brazil. The new law taxes companies and bettors, defines rules for the service's exploitation, and also determines revenue sharing.
This is the proper and necessary regulation of Article 177 of Federal Law No. 14,597/2023, the so-called "General Sports Law," which, in its heading, states that "The prevention and combat of manipulation of sports results aim to ward off the possibility of intentional collusion, acts or omissions that seek undue alteration of the result or course of a sports competition, undermining the unpredictability of the competition, test, or sports match with a view to obtaining undue benefit for oneself or others."
Before delving more incisively into the topic, it is important to note that the activity of "betting" is not to be confused with "gambling": while the latter refers to games of chance, where the result is mainly determined by chance and luck plays a fundamental role, the activity of "betting" is related to bets on sports, political, or cultural events and requires a prior element of skill and/or knowledge, such as predicting a result based on statistics or available information.
"Betting" companies are currently the main sponsors of clubs competing in Serie A, B, C, and D of the Brazilian Football Championship: out of the 124 teams competing in any national division in 2023, approximately 70% have sponsorship from a betting platform, many with master sponsorships occupying the most prominent space on the teams' shirts.
One of the central and most discussed topics is precisely related to "betting integrity," which seeks to offer the bettor complete security against possible frauds, which, obviously, would harm honest people for the benefit of those who resort to deviations and unscrupulous practices to obtain illicit advantages for themselves and third parties.
The concern is significant because the goal should be to prevent not only the manipulation of the final results themselves but also specific events within a match that do not necessarily decide its outcome (the so-called "spot-fixing") but are also important for sports betting purposes, such as deliberately receiving a yellow card in a football match or intentionally losing the first set to a technically inferior opponent before winning the other two in a tennis match.
Another problem involves privileged information that can be passed on to bettors, giving them an undue advantage and, consequently, tainting the bet. This issue also involves the fine line established between the illicit and a simple "tip" given by someone "who is absolutely in the know" about recent events.
The easiest way to distinguish one from the other is to objectively establish what information belongs to the public domain. If, for example, it is public knowledge that there is severe animosity between the coach and the most important player of a football team, and therefore, there is the imminent risk of him sitting on the bench in an important match, then this will not be privileged information for the purpose of sports betting.
There is also the undesirable and nefarious risk of violating basic rules by the participants in sports events, which occurs when an athlete bets on their own competitions or in their own sport, using their specific knowledge. Practices like these are obviously undesirable because they tarnish the credibility of the sport itself and deprive it of the desired and natural sportsmanship.
Considering the importance of the issue and the need to disseminate good integrity practices in the sector, the Brazilian Institute of Responsible Gaming (IBJR) was created in Brazil, initiated by some international gaming sector companies. Its main objective is to assist companies in the sector in defining their primary guidelines aimed at promoting responsible and rational gaming.
These challenges are not exclusively Brazilian, and therefore, several international organizations are already fully operational in favor of integrity in sports and sports betting practices.
The "Sports Betting Integrity Forum – SBIF," for example, was created in 2012 in the UK and brings together anyone interested in sharing best practices and discussing current and future issues in the sports betting integrity scenario.
The "International Betting Integrity Association – IBIA," formerly known as "Sports Betting Integrity – ESSA," founded in 2005 and based in Brussels, Belgium, is considered the leading global organization in terms of integrity for the licensed betting industry. Its central objective is to combat corruption in betting to protect the integrity of sports and its respective businesses. IBIA members generate over €115 billion in betting turnover per year and represent almost 50% of all regulated online commercial bets worldwide.
Finally, the "US Integrity," in the words of its CEO, Matt Holt, aims to "help ensure that all sports competitions are fair and transparent." To achieve this, US Integrity forms partnerships with the largest professional sports leagues and college conferences in the USA, as well as with licensed sports betting operators and regulators, to "ensure the integrity of sports betting on every play, in every game, and every sport."
Especially regarding regulation, certification, and principles applicable to the so-called responsible gaming, the "World Lottery Association – WLA" is the international organization that brings together not only global operators in the lottery and sports betting industry but also all suppliers in the gaming industry. Concerned with the global interaction that occurs in the gaming sector, WLA operates, for example, in global cooperation with five other regional entities: ALA (Africa), APLA (Asia-Pacific), CIBELAE (Latin America), EL (Europe), and NASPL (North America).
Furthermore, it maintains a direct relationship with the "Global Lottery Monitoring System – GLMS." Since 2006, WLA has adopted and disseminated the so-called "Principles of Responsible Gaming" and also the "Legal Framework of Responsible Gaming," based on these regulations, certifying its associates worldwide and granting them the seal of integrity so that they can operate in the sports betting sector and, at the same time, provide the necessary security to bettors.
Although we are not facing any global novelty, only now is this issue gaining prominence in Brazil, hence the importance of Law No. 14,790/2023. The strong influence of the international market is evident in Article 8, which establishes that the issuance and maintenance of the authorization to exploit fixed-odds betting will be conditioned on the demonstration, by the interested legal entity, of the adoption and implementation of policies, procedures, and internal controls not only to prevent money laundering, terrorist financing, and the proliferation of weapons of mass destruction (item II) but also to ensure betting integrity and prevent match manipulation and other frauds (item IV).
This means, in other words, that any betting company interested in operating in Brazil will have to necessarily structure a "security and integrity mechanism" (Article 19, heading) not only with specific elements but also with those established in Article 57 of Federal Decree No. 11,129/2022, subject to the necessary adaptations. It will also have to provide for the hiring of a professional ("CIO – Chief Integrity Officer") who has the necessary technical knowledge, including issues related to the LGPD - General Data Protection Law, as well as, at their disposal, the budget, team, autonomy, and independence necessary for the proper performance of their functions.
The legal entity that receives authorization from the Ministry of Finance to explore fixed-odds betting, referred to in Item X of Article 2 of the Law as "betting operator agent," will be required to integrate a national or international sports integrity monitoring body (Article 19, § 2) and must also adopt identification procedures to verify the validity of bettors' identities (Article 23, heading). The latter is a requirement normally directed at financial institutions and internationally known as "Know Your Client – KYC," designed to protect them from fraud, corruption, money laundering, and terrorist financing.
The KYC procedure involves several stages to securely know customers' identities, have a perfect understanding of the nature of their activities and the qualification of the resources used, and finally, assess the risks of money laundering crime occurrence. It is through this monitoring that possible integrity violations or suspicious activities will be identified—by analyzing the client and the bet made, it should be evaluated whether the activity is considered suspicious enough to justify raising an integrity alert and submitting an external report to the Ministry of Finance and the Public Prosecutor's Office.
This procedure will need to be well-structured by betting companies since Article 26 establishes a series of prohibitions on the direct or indirect participation of certain individuals as bettors, with the betting operators themselves having the duty to inform public authorities, within five business days, about evidence of manipulation of events or results that they identify or that are reported to them through their reporting channel, as provided for in Article 35 of Law No. 14,790/2023.
One of the prohibitions, incidentally, falls on "public servant with duties directly related to the regulation, control, and inspection of the activity at the federal level in whose staff they exercise their competencies" (Article 26, item III). For this reason, § 3 of the same Article 26 expressly states that a violation of this prohibition will characterize, including, an act of administrative impropriety and also a conflict of interest in the exercise of a position within the scope of the federal Executive branch.
Moreover, as the administrative infractions punishable according to the rules under analysis do not exclude the application of other penalties provided for in the legislation (Article 39, heading), if a betting company omits itself and allows, even if only through negligence, the public servant occupying these specific attributes to place a sports bet, it will characterize the "giving of undue advantage," and consequently, the harmful act provided for in Item I of Article 5 of the Corporate Anti-Corruption Law (Law No. 12,846/2013), with the possibility of applying reputational and pecuniary sanctions that can reach up to 20% of the company's gross revenue.
And the worst part: all of this without prejudice to the consummation of the administrative infraction provided for in Item VIII of Article 39 of Law No. 14,790/2023, namely, "execute, encourage, allow or in any way contribute or contribute to practices that undermine sports integrity, the uncertainty of sports results, the transparency of the rules applicable to sports events, equality between competitors, and any other form of fraud or undue interference capable of affecting the fairness or health of the conduct associated with the proper performance of sports activity."
From the analysis of the content of the recently published law, it is clear, therefore, that betting companies can only establish themselves and operate regularly in Brazil if they implement corporate integrity systems with a Chief Integrity Officer functioning as the guiding vertex and with the necessary expertise to prepare and operate with due skill the codes of ethical conduct, best practices for investigation, relevant relationships with external stakeholders, and the structure of the integrity unit.
It is undeniable, therefore, that corporate integrity is increasingly in evidence in Brazil and that, moreover, it will be decisive in ensuring the health of sports betting in all its aspects and to generate, consequently, the necessary confidence for all interested bettors.
Marcelo Zenkner
Partner | Co-head of the Regulatory Practice Group at Tozzini Freire Advogados | Business Integrity & ESG Policies | Professor at Link School of Business
