The regulation of sports betting management activities was reinforced by Ordinance No. 1,143, of July 11, 2024 – issued by the Secretariat of Prizes and Betting of the Ministry of Finance (SPA/MF) – which took care of designing the minimum contours of the “policies, procedures and internal controls for the prevention of money laundering” to be implemented by betting operators.
Adopting the new regulatory paradigm based on risk (risk-based approach), the Ordinance assigns betting operators the role of “defining the risk matrix used for its management” (art. 14, §1), taking into account the risk profile inherent to their business model, products and services offered, in addition to the risk represented by platform users, their employees and third parties with whom they establish commercial relations.
The result of a correctly implemented program will be the detection and prompt reporting of operations that appear to be money laundering to the Financial Activities Control Council (Coaf), an agency created with the enactment of Law No. 9,613/98 as a Financial Intelligence Unit (UIF) with a certain degree of independence in relation to investigative and judicial bodies.
After successive structural changes, since January 2020, Coaf has been linked to the Central Bank (Bacen), but has maintained its operational autonomy to develop activities to regulate, investigate and sanction conduct that indicates the practice of money laundering in sensitive sectors of the economy (for example, the market for works of art and luxury goods, the banking sector and, now, the betting sector).
Sectors are said to be sensitive to money laundering practices because they carry out activities or offer services traditionally used to conceal the illicit origin of values and assets and for which specific duties are required to identify customers and third parties and report atypical transactions.
As an example of the aforementioned market for works of art and luxury goods, its use for money laundering purposes arises from the possibility of moving and physically concealing assets originating from criminal activity associated with the high subjective value in their pricing process.
The use of the banking sector, in turn, makes it possible to remotely transfer large amounts of money. Now, with the regulation of sports betting activities, the focus of attention is on the so-called 'Bets' due to the possibility that a bettor, based on a given probability rate, could justify the entry of the prize into his/her legal assets and, in doing so, mask any illicit origin of the amount that was bet.
It is with the aim of preventing this instrumentalization of betting operators by third parties to carry out acts of money laundering, by standardizing the parameters for identifying customers and third parties, as well as establishing standards for reporting suspicious transactions, that SPA issued Ordinance No. 1,143, the rules of which must be implemented under penalty of sanction from the 1st of last month.
Therefore, it is up to the operators to qualify and classify the profiles of users of their platform (art. 16), based on their own risk matrix of exposure to money laundering practices, including the analysis of the compatibility of the bettor's economic and financial profile with their transactions, as well as their possible classification as a politically exposed person (PEP), subject to greater scrutiny by the operating agents.
Based on these criteria, it is also up to the operators to monitor and analyze transactions, with special attention to those without economic or legal basis for their occurrence, incompatible with market practices or that, for any other reason, denote the practice of money laundering or financing of terrorism, for subsequent communication to COAF in the event of finding “indications of ML/FTP practices” (art. 27).
In Europe, the risk-based AML/FTP regulatory model has been implemented since the publication of the 4th European Union Anti-Money Laundering Directive – Directive [EU] 2015/849, whose full transposition into the national law of the Member States became mandatory since January 2020.
The experience of these countries has highlighted the need for a greater degree of leniency on the part of the supervisory authority in imposing sanctions arising from possible failures to comply with identification and reporting duties by operators, at the risk of, by justifying the increasing accountability of platforms in this greater discretion granted to the private sector, causing a phenomenon of “over-reporting” on the part of regulated entities.
For fear of liability, operators will reduce their internal parameters for detecting signs of money laundering, increasing the volume of reports of atypical transactions made to the Coaf.
In Europe, this phenomenon of “overreporting”, in addition to an increase in operating costs for the private sector, which will already have to adapt its institutional structures, make IT improvements, train personnel and strengthen compliance teams for compliance purposes, and also for the Public Administration, which will have to allocate more and more resources to deal with the growing number of reports, is also associated with a reduction in the FIU’s capacity to screen and investigate typical situations of money laundering and terrorist financing.
This phenomenon is usually explained by resorting to the fable of the “boy and the wolf”, in which, analogously, the increase in the volume of reports will lead to a natural discrediting of the material received by the financial intelligence unit.
Davi Tangerino
Partner at Davi Tangerino Advogados and professor at UERJ
Victor Labate
Lawyer at Davi Tangerino Advogados
