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VIXIO GamblingCompliance sat down with Francisco Briones, the director general of Ecuador's Internal Revenue Service, to discuss the country’s road to gambling regulation.
Gambling has been illegal in Ecuador since 2011, when a ban came into place for moral reasons. However, as online gambling permeates Latin America, and countries in the region are in the process of regulating it, Ecuador is reconsidering its tactics.
Ecuador is an up-and-coming region that the gambling industry is excited about. What do you want people to know who are hoping to enter the market?
I think that the first thing to know about this topic here in Ecuador is that there is actually no regulation on it. When you talk about gambling in general, it is a prohibited activity, when you speak to the lawyers and the experts on this topic, they’ll tell you it's constitutionally prohibited here. There is no room for any gambling industry.
But what happened, three or four years ago, somebody came up with the idea when talking about sports forecasting, there is no such thing as a gambling ban.
There was a query to the state lawyer, asking if these sports predictions are considered gambling, and he says he said “no”.
So that's how they found some room to start gambling. That's the first point. There is no regulation specifically on gambling like you may find in Colombia or in Peru where there are taxes dedicated to it. But, as you may have read or heard, we are a country where people like sports a lot, especially football.
We found through our intelligence department here in the tax administration, that it began in the football industry, with the main teams. The four most popular teams in Ecuador began to find a source of financing through gambling brands. So these big brands — the principal brands of gambling in football — began to have conversations with them and sign contracts and sponsorship deals. That's the way it started.
People and the media then started asking how these companies have a presence here in Ecuador if it is understood that gambling is prohibited, and they began putting pressure on the government, trying to find an answer.
But gambling companies function through partnerships here. The companies are not coming to Ecuador, but drawing up specific contracts with local businessmen. And then are paying taxes like VAT (value added tax) and others, but nothing specific to gambling.
Can you explain how offshore operators still pay VAT in Ecuador?
Basically, we have VAT dedicated to digital transactions in general. So when people use credit cards for gambling, they do pay the VAT because there are financial systems in place that take the tax directly from the credit card.
That's one way, but in Ecuador, we use a lot of cash. So if a transaction is made with cash it's almost impossible to tax it.
Would you like to see a form of legalisation for tax purposes, because right now you're not getting any tax revenue?
I think that is not a priority right now, but we are working on it. We’ve observed external allies trying to regulate as the first step, to know more about the regulation around Latin America. And then we will work on a text for a new law. But right now, it is not a priority.
What we are doing right now is intensive controls of the tax administration on the contributors that have a business related to gambling. We are auditing the contracts for the sponsorships that they have with brands abroad and the relationships they have with the football teams in Ecuador.
What we have also found is that this activity is used in the black market for money laundering. I’m not talking about the recognised and the international brands but the way this is growing, we have seen that new local branches are trying to take advantage. So it is also a security problem and a financial problem that needs to be regulated.
In our preliminary research, we have found around 16 companies that have branches or are working here in Ecuador. We are auditing 11 of them, and for the other five, we have found that they don't even have any registration here in Ecuador. They are just websites. We are trying to find who is behind them and trying to register them. But we have been making audits for the last three years, and we believe that we're going to have some results from the audits.
