Exclusive Interview with Neil Montgomery on the Potential Changes in Brazilian Gambling Industry
Neil Montgomery, an international expert in gambling law, founding and managing partner of Montgomery & Associados, shares insights on the challenges and opportunities for foreign operators in Brazil
The Brazilian federal government's plan to regulate online gaming has generated various questions and concerns among foreign gambling operators. To shed some light on the matter, we spoke with Neil Montgomery of Montgomery & Associados, an international expert in gambling law.
Regarding the government's plans to regulate fixed odds sports betting approved by Federal Law No. 13,756/2018, Montgomery mentioned that the legalization of all other gaming verticals is being discussed in Congress, particularly under Bill of Law No. 442/1991, which is currently being reviewed by the Senate.
According to Montgomery, the regulation of the sports betting law will take the form of a Provisional Measure, issued by the President of the Republic and immediately effective once published in the Federal Official Gazette. However, it must be approved and converted into an ordinary law by Congress within 120 days, or it will be forfeited. The Provisional Measure will likely adjust the 2018 law to restrict the Brazilian market to locally licensed operators and provide penalties for violations by licensed and unlicensed operators. It will also be supplemented by administrative ordinances (portarias) issued by the Ministry of Finance, which will act as the regulator for now. These ordinances will provide rules for the licensing procedure, advertising, responsible gaming, technological aspects, payment processing, etc.
Operators wishing to apply for a Brazilian license must set up shop in Brazil by incorporating a Brazilian subsidiary or opening a local branch (the latter requiring prior approval by the Federal Government). Since this process, along with opening a local bank account, can be time-consuming, operators are encouraged to take measures to proceed as soon as possible. It is also advisable for operators to secure the registration of their trademarks and domain names in Brazil before taking such corporate actions.
When asked about the potential risks and challenges that foreign gambling operators might face when entering the Brazilian market, Montgomery highlighted the importance of engaging competent and trustworthy advisors to assist in set up and pre-operational matters.
He stated that Brazil is not a country for amateurs, and foreign operators should plan and prepare adequately before entering the Brazilian market. The first step is to engage competent and trustworthy advisors, such as lawyers, accountants, and local representatives, to assist with set up and pre-operational matters.
Once they have established a presence in Brazil, obtained a license, and started operations, one challenge will be to navigate the complex and bureaucratic tax system currently adopted by Brazil. It is hoped that the Federal Government will assist in implementing a more user-friendly regime for the sports betting industry, especially since operators are expected to withhold personal income tax on payouts to bettors.
Brazilian employment law and the labor court system can also present challenges for any company doing business in Brazil. While the main body of employment laws, known as the CLT, underwent reform in 2017, the legislation, and especially the labor courts, are still quite biased towards employees. The new socialist administration may also affect this scenario in the coming months and years. However, compliance with such laws and adequate people management will be required from operators.
Another area of concern can be compliance with consumer legislation and potential consumer claims. Brazil's consumer legislation dates back to the 1990s and is considered one of the toughest in the region. Operators will have to observe the Consumer Protection Code and related norms and may be exposed to litigation in the form of consumer claims from dissatisfied customers. Claims can be filed in any part of Brazil, and can be processed before Small Claims Courts (for claims up to 40 minimum wages) or normal state courts. Additionally, operators will have to register with the Federal Government's online complaint platform called consumidor.gov, which is often the first port of call for complaints filed by customers. Operators may also be exposed to administrative claims from other consumer organizations such as the consumer watchdogs called Procon. Therefore, operators will need to ensure full compliance with consumer legislation and have effective customer service channels to mitigate the risk of customers taking legal action.
Montgomery also spoke about the benefits and drawbacks of requiring sports betting companies to be headquartered in Brazil. He emphasized that foreign operators interested in entering the Brazilian market will need to establish a local presence and obtain a license. The Federal Government has promised to crack down on unlicensed operators and restrict Brazilian bettors' access to their services.
The primary advantage of entering this market is gaining access to one of the largest and most profitable industries worldwide. However, foreign operators will face the challenge of complying with local tax and regulatory requirements, which can be complex and unpredictable.
Moreover, establishing a physical presence in Brazil exposes foreign operators to additional risks, as local creditors can now pursue legal action against them.
Regarding the location of a gambling operator's servers or data centers, Montgomery highlighted that to date, the regulation has not specified any requirements for the location of servers or data centers. In the past, the Ministry of Finance indicated that establishing a physical presence would not be necessary as long as operators granted the regulator 24/7 real-time access and complied with Brazilian data protection regulations. However, the exact requirements have yet to be clarified in the upcoming regulations.