Brazil Licensing Ordinance Leaves Key Question Unanswered

May 23, 2024
Brazil’s long-awaited ordinance to establish the country’s licensing process arrived on Wednesday, but several provisions remain problematic, according to lawyers and operators. 

Brazil’s long-awaited ordinance to establish the country’s licensing process arrived on Wednesday (May 22), but several provisions remain problematic, according to lawyers and operators.

Perhaps the most significant lingering question is what exactly is meant by a “Brazilian” in the context of one fundamental licensing requirement.

When the legislation that became Law 14.790 was approved in December 2023, it included a statutory requirement for all operators applying for licences to have a “Brasileiro” as a partner that holds “20 percent of the legal entity’s share capital”. 

The law did not specify if the “Brazilian” had to be a person or if it could be a legally incorporated company, and the licensing ordinance published on Wednesday did not provide clarification either.

The ordinance specifies that subsidiaries of foreign companies that establish an administrative headquarters in Brazil are eligible to apply, but they still must provide evidence that they meet the 20 percent Brazilian shareholding requirement as established under Item IX of Article 7 of Law 14.790.

Rafael Marcondes Marchetti, the legal director for Brazil betting industry association IBJR and chief legal officer for Rei do Pitaco, told Vixio GamblingCompliance that the issue “was not completely clarified by the Authorisation Ordinance”.

However, he noted that Article 4 of the ordinance does prohibit applications by foreign entities that merely have a branch, subsidiary, agency or representation in the country, “which reinforces the perception that shelf companies will not be admitted, necessitating an individual holding a portion of the share capital”.

Udo Seckelmann, a Rio de Janeiro-based attorney with Bichara e Motta law firm, said that his firm and its clients had been waiting for the licensing ordinance as “we expected the regulation to clarify [the 20 percent rule] but they did not clarify that”.

Caio de Souza Loureiro, a partner with  Tozzini Freire Advogados in Sao Paulo, suggested that how the 20 percent requirement should be applied is still being analysed within Brazil’s Ministry of Finance, which released Wednesday’s ordinance via its newly formed Prizes and Betting Secretariat.

“Due to its relevance, I’m assuming that the ministry is seeking the most legal support before stating its opinion,” he said.

Loureiro noted that the Ministry of Finance relies upon a federal government attorney’s office, the Procuradoria Geral da Fazenda Nacional or PGFN, to provide legal guidance on matters related to finance.

“Although the ministry could opt to wait for PGFN’s opinion, many other critical issues were waiting for the regulation … so I suppose [they made] the decision to issue the ordinance without the decision on the ‘20 percent’ topic, aimed at those issues.” 

Six-Month Transition Period

Various other licensing requirements included in Wednesday’s ordinance reflect those that were already established by Law 14.790, including payment of an upfront fee of R$3m for a five-year licence term.

But the ordinance also specifies various supporting documents and declarations that will have to be submitted regarding each operator, its controllers and key persons, as well as to evidence the company's compliance with a series of requirements including Brazilian labor laws.

Luiz Felipe Maia, founding partner at Maia Yoshiyasu law firm in Sao Paulo, noted that the ordinance requires operators to designate individual executives to perform certain key functions, including compliance, accounting and data security, without the possibility of combining those roles.

Maia also was concerned by provisions related to an operator’s share capital, specifically that they submit “proof of payment in current currency of the minimum share capital of R$30m”.

“I think there is a difference between available capital and available cash,” opined Maia. “You need to fund the company mostly with capital which is not the most efficient way to fund the company.”

Another new provision requires operators to be part of a responsible advertising monitoring association to be licensed. According to Marchetti Marcondes, this means operators will have to be members of the Brazilian self-regulatory advertising body CONAR or “at least an entity that is a member”.

Brazilian industry groups IBJR and ANJL are both associate members of CONAR, according to the advertising body’s website.

Despite the remaining uncertainties, lawyers did welcome the clarity provided by the ordinance in terms of the timeline for Brazil’s transition period to a regulated market for sports betting and online gaming.

According to the ordinance, new legal prohibitions on the operation and processing of payments for unlicensed online gambling in Brazil that were established by Law 14.790 will take formal effect on January 1, 2025.

Operators that apply for a licence within 90 days of Wednesday’s ordinance, or by August 20, will be guaranteed to receive a decision on their application within 180 days, or by November 18, before the end of the transition period. 

In a statement announcing the new ordinance, the Ministry of Finance said it expects to publish a consolidated list of all those operators that are approved in this initial licensing wave, with Brazil’s first tranche of licences expected to be formally issued before the end of the transition period.

Seckelmann noted that the ordinance “doesn't prevent the operators from applying for a licence after the 90 days”. 

“You can apply for a licence whenever but what they say is, after the 90 days, they do not give certainty that the licence will be issued by the end of the year,” he said.

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