Brazilian Shareholder Requirement Raises Urgent Questions

February 9, 2024
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What is a Brazilian, exactly? That is the question on the tip of everyone’s tongue as interested operators struggle to understand the 20 percent Brazilian ownership requirement stipulated by Brazil's new online betting law.
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What is a Brazilian, exactly? That is the question on the tip of everyone’s tongue as interested operators struggle to understand the 20 percent Brazilian ownership requirement stipulated by Brazil's new online betting law.

According to Article 7 of Law 14.790, enacted in late December, all operators eligible for a licence must have a “‘brasileiro’ as a partner holding at least 20 percent of the legal entity's share capital”.

However, the law does not specify whether the Brazilian in question has to be a local partner, or whether the requirement could instead be met by applying for a licence through a registered Brazilian subsidiary.

“We don’t have clarity [about whether] this investor is a natural person or a legal entity,” Rafael Marchetti Marcondes, legal director for Brazilian betting association IBJR, said during a panel at ICE in London on Wednesday (February 7).

“Does a legal entity have to hold the capital directly or indirectly? We can expect an ordinance on this point.”  

Flutter’s Mark Warrington, who acts as the company's director of legal and regulatory affairs, said: “It’s quite clear to me that the Ministry of Finance needs, as a matter of some urgency, to clarify what is meant by these requirements.”

The executives were speaking one day after José Francisco Manssur, special advisor to Brazil's Ministry of Finance, announced that a first licencing window for online betting licences would open as soon as March. 

“Does this requirement that you have a partner with 20 percent shareholding ... apply from the moment you apply for the licence, which could be in March? Or does it apply from the moment you are granted the licence?”  Warrington asked.

A lawyer who requested anonymity told Vixio that they had clients who, in light of the large upfront licensing fees of $6m set by Law 14.790, would prefer to sell their operation to an international operator looking to enter the market, but finding a buyer is impossible as long as these requirements remain opaque. 

Warrington added: “There may be international operators that are present at ICE who are thinking about who to partner with, but they don’t know how long they have to negotiate, and reach an agreement. Does the agreement have to be final and binding? Does it have to be submitted to the minister of finance?”

Marchetti Marcondes told Vixio that he believes the requirement for a Brazilian investment partner to be unconstitutional. That opinion is shared by other Brazilian lawyers, who have warned that a legal challenge against a strict requirement to have a Brazilian person as a shareholder would likely be challenged in court and could even delay the licensing process as a whole. 

A regulatory ordinance clarifying the issue is expected imminently, as pressure mounts on Brazil's Ministry of Finance to provide answers.

It is of note that no ordinances can be officially enacted until they are be signed by the head of the finance ministry's newly created Prizes and Bets Secretariat, a role that is widely expected to be filled by Manssur.

Barring a last minute change of appointees, which is always a possibility in Brazil’s tempestuous political climate, Manssur is expected to assume office at the new secretariat on February 20. 

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