Brazil

A Gambling Compliance Regulatory Report

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Contents
Contents..................................................................................................................................................2
Background.............................................................................................................................................3
RegulatoryEnvironment.........................................................................................................................3
CriminalContraventionAct.................................................................................................................3
Casinos................................................................................................................................................4
Lotteries..............................................................................................................................................4
BingoandSlotMachines.....................................................................................................................5
HorseRacetracks.................................................................................................................................6
Onlinegambling..................................................................................................................................7
MoneyLaundering..................................................................................................................................7
FurtherDevelopments............................................................................................................................8
DeputyAlvesGamingBill....................................................................................................................9
RegulatorContactDetails.....................................................................................................................10

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Background
Withatotalareaof8,514,877squarekilometersandapopulationof190million,Brazilisthelargest
and most populated country in Latin America. Politically, the country is a federation integrated by
twentysixstates(estados),onefederaldistrict(DistritoFederal)and5,564municipalities.Brazilhas
approximately26millioninternetusers(2005)and86millionmobilephones(2005).

Given its huge economic potential and growing population, Brazil has often been tagged with the
label of country of the future and is undeniably considered to be an emerging world economic
power. The Brazilian economy has been growing constantly in the last decade, registering a 3.6
percent growth in 2006. However, poverty, corruption and violence remain prevalent throughout
the country. According to officialfigures,inJune2006therateofpeoplelivingbelowthe poverty
linebasedonlabourincomewasof18.57percentofthepopulation.

Formostofthetwentiethcentury,almostallgamblingactivitieswereprohibitedinBrazil.However,
at the start of the 1990s, the government changed its position and allowed the commercial
exploitationofbingoandslotmachinesasawayoffundingsportactivities,startingatenyearperiod
ofgamingexpansion.Thehoneymoonbetweenthegamingoperatorsandthegovernmentwasover
in 2004 after a series of political scandals tainted both government officials and leading gaming
entrepreneurs, situation that almost caused the total prohibition of all bingo and slot machine
activitiesinthecountry.

The political storm over gambling is not over. Bingo and slot machines continue to work in Brazil
without a clear regulatory framework and this industry is under strong pressure from the
governmentandtheFederalCourts.

DespitetheundoubtedpotentialoftheBrazilianmarket,foreignoperatorshavemostlymaintained
themselvesoutofBrazilwaitingforamorefavourablepoliticalenvironmentandclearerregulation
to be enacted. On the other hand, scandals related to the gaming industry have slowed the
government'smovementtowardtheliberalizationofgaminglaws.

Regulatory Environment
Criminal Contravention Act
No analysis of the Brazilian gaming regulation is complete without the mention of the Criminal
ContraventionAct1941(LawDecreeNo.3.688).Thislawrulesthattheofferingofgamesofchance
isprohibitedandcriminalizedinBrazil.TheActrulesthatestablishingoroperatinggamesofchance
inapublicplaceissubjecttoimprisonmentforthreemonthstooneyear.TheActdefinesgamesof
chanceas(i)agameinwhichwinningorlosingdependsexclusivelyorprincipallyonluck,(ii)bets
onhorsesoutsidetheracetrackorotherplaceswheresuchracesareauthorizedand(iii)betsonany
sportcompetition.

TheCriminalContraventionActhasnotbeingabolished.Therefore,anyformofgamingactivitythat
hasnotbeenregulatedinanindependentpieceoflegislationmaybeconsideredunderthescopeof
theActandthereforeprosecuted.

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Casinos
Before 1946, Brazil allowed the operation of casinos. Rio de Janeiro, So Pauloand Minas Gerais
were the three states considered as capitals of the Brazilian casino industry, in a time when
legendary musical shows were performed in the big saloons of casinos suchs as the Copacabana
Palace,Quitandinha,Atlntico,Urca,ParqueBalnerioHotel,andtheGrandeHoteldeArax.

However,in1946theBraziliangovernmentenactedtheDecreeLawNo.9215annullingalllicences,
authorizationsandconcessionspreviouslygrantedbythefederal,state,andmunicipalgovernments.
ThislawalsoexpresslyreturnedcasinogamingunderthescopeoftheCriminalContraventionAct.
Asaresultofthis,therehasbeennocasinogaminginBrazilsince1946.

International casino operators and the tourism sector have lobbied to see the reintroduction of
casinogaminginBrazilandhavereceivedsupportfromboththepopulous,industrialisedstatesof
thesouth(RiodeJaneiro,SoPauloandMinasGerais)andthosethatrelyheavilyontourism(Bahia,
CearandSantaCatarina,aswellasRio).Yet,itisstillnotclearwhetherthegovernmentisheading
towardsthelegalizationofcasinoactivities.

Lotteries
The Caixa Econmica Federal (La Caixa), Brazils largest stateowned public bank, controls the
nationallotteryandnineotherfederallotteries.LaCaixaobtainedthecontrolofthelotteriesasa
resultofthe1961sDecreeNo.50.954,whichwithdrewalltheconcessionsandlotterylicencesthat
hadbeengrantedtotheprivatesector.

1967s Law Decree No. 204 created the first national lottery (Federal Lottery), giving the
administration and the monopoly of this form of gaming activity to La Caixa. In the last years, the
Caixahasstartedoperatingnewgamingformssuchasinstantlotteries(Instantanea),sportbetting
(Lotogol),amongstothers.Itisexpectedthatinthefollowingmonths,LaCaixawillstartoperatinga
new form of sporting lottery called Timemania created by the Lula government to assist Brazilian
footballclubs.

Inaddition,Brazils26federaldistrictsareauthorizedtoruntheirownstatelotteries(ofwhich17do
so). After the legalization of bingos and slot machines in 1993, Brazilian state lotteries started to
enterinnewgamingfields,authorizingbingovenues,slotmachineparlorsandevenonlinegaming,
underthecoverofstatelawsthatallowedsuchactivitiesinthestate.Yet,since2004theSupreme
Federal Tribunal of Brazil (the highest court in Brazil) ruled that states are only empowered to
regulate matters related to lottery gaming and not other forms of gaming, such as bingo and slot
machineswhichareregulatedexclusivelyintheFederalsphereasthisconstituteanexclusivefederal
attribution.Consequently,theSupremeFederalTribunalhasbeendeclaringstategaminglegislation
thatdealwithgaming,otherthanlotteries,unconstitutional.

The State Bingo Association and private entrepreneurs are hoping that the Brazilian Congress
approvesBill472/2007whichwillsetbetterconditionsfortheStatelotterymarket.Thisbillwould
authorize Federal States and the Federal District to exploit lotteries in their territories, directly or
throughthirdparties.UndertheproposeStatelotteryscheme,theCAIXAwillhavetoauthorizeall
newformsofstatelotterygames.Ontheotherhand,Stateswillnotbeabletoexploitgameswith

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similar characteristics to the ones offered by the CAIXA. This could allow State lotteries to licence
gamessuchasbingos.

Yet, according to Alberto Peredne of the Associao Brasileira dos Bingos ABRABIN, this bill, if
approved, could be declared unconstitutional by the Supreme Court, as there is a previous
resolutionoftheSupremeCourtsignalingthatlawsdealingwithstatelotteriesareunconstitutional.

Bingo and Slot Machines

Bingos and slot machines have a very problematic history in Brazil. Eventhough there are large
number of bingo and slot machine parlours operating, it is not clear whether these activities are
forbiddenornotinBrazil.

Theproblemisthatatpresentthereisnofederallegislationexpresslydealingwithbingoandslot
machineoperations.Thegovernmentconsidersthatbingoandslotmachinesareprohibitedunder
the terms of the Criminal Contravention Act. On the other hand, bingo operators believe that the
laws that originally authorized these gaming forms (the now abolished Zico and Pele Laws) took
bingo and slot machine operations out of the scope of the Criminal Contravention Act and,
therefore,evenwhentheseformsofgamingarenotexpresslyregulated,theyarenotforbidden.

Bingo halls continue working thanks to court injunctions granted by state and federal judges that
have effectively prevented police forces from shutting them down. Politicians are now trying to
decidewhetheriftheyneedtooutlawbingohallscompletelyorregulatesuchactivitiesinorderto
introducestrictercontrolsandregulationasawayoftacklingtheendemiccorruptionthatplagues
thisindustry.

Recently, Brazilian Deputy Antonio Carlos Mendes Thame has proposed Bill 883/2007 that, if
approved,willprecludejudgestoissueinjunctions(liminares)toprotectgamingoperatorsofclosing
procedures initiated by government authorities. Also, this bill will prevent judges to issue
authorizationsdestinedtoreopenbingovenues,whenthesehavebeenclosedbyauthorities.

Thisproposalhasbeenmotivatedasaresultoftheexistenceofaliminareindustry,thatprovides
sheltertoillegaloperators,thatcontinueoperatingasaresultofthelackofclearregulation.Atthis
moment,thebillisbeingreviewedbytheConstitutional,JusticeandCitizenshipCommissionofthe
DeputiesChamber.

There appear to be some hope for bingo businesses in Brazil. In March 2008, President Lula
instructed Jose Mucio Monteiro, the Secretariat of Institutional Relations, to recommence
discussions with bingo workers, operators and MPs in order to reach a legislative solution to the
bingo problem. The idea is to review the existing legislative proposals to regulate bingo, currently
pendingintheBrazilianChamberofDeputiesandintheSenate,andbeginnegotiationsinorderto
formulateasinglelegislativeproject.

However,thenewprojectwillnotincludeslotmachineactivitieswithinitsscope,ineffect,meaning
thatthisgamingactivitywillcontinuetobeforbiddeninBrazil.

IndustryobserversbelievethatthistimePresidentLulahasgoodreasonstofinallysettlethebingo
problem.ThelegalizationofthebingoindustrycouldbeaverypopulardecisionforhisGovernment
asthismovewillsecuretheexistingjobsinthatindustryandgeneratethousandofadditionaljobs.

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On the other hand, gambling is seen as a new source of public revenue that could help the
Government fund sporting activities in the country. According to the Brazilian Bingo Association
(Abrabin),bingoactivitiescouldincreasetaxrevenuesbyR$2.6billionandgenerate120,000new
jobsinBrazil'seconomy.

Horse Racetracks
HorsetrackbettinghasalongtraditioninBrazilandhasnotsufferedfromtheconstantlegislative
uncertainty that other gaming sectors have endured. This activitybenefittedby the fact that it was
neverincludedunderthescopeoftheCriminalContraventionAct.Presently,horseracetrackbetting
isregulatedbyLawNo.7291enactedinDecember1984andits1988regulation(Decree96.993).

Theorganizationofhorseracetracksandtheexploitationofhorsebettingactivitiesaresupervised
by the Comisso Coordenadora da Criao do Cavalo Nacional (CCCCN). Therefore, entities
interestedinexploitinghorsebettingactivitieshavetofileforanauthorizationtotheCCCCN.

Betsonturfcompetitionscanonlybetakeninauthorizedracetracks,inturforganizationsandtheir
authorized branches or in authorized betting agencies. Authorized racetrack bookies may also
exploit sweepstakes or other forms of lotteries, if they satisfy the condition established by the
CCCCNandtheGeneralSecretary.

BettingorganizerswillhavetopayamonthlycontributiontotheCCCCNestablishedonthebasisof
the bets taken in the previous monthly period. The contributions rates are established in a
progressiveaccumulativescaleandwillvarydependingonaReferenceValue(RF)publishedbythe
CCCCN.Thecontributionratescaleisthefollowing:

Betsbetween1to2,500RFwillbeexempted.
Betsbetween2,501and3,500RFwillbeburdenwitha0.5percentrate.
Betsbetween3,501and4,000RFwillbeburdenwitha1percentrate.
Betsover4,001RFwillbeburdenwitha1.5percentrate.

Until recently, parimutuel wagering was only permitted on local races. In 2005, the Ministry of
AgricultureissuedtheNormativeInstructionNo.27authorizingbettingoverinternationalsimulcast
races. This has allowed the Spanish group CoderePortfolio info about Codere to enter into the
Brazilian market through 10year exclusivity agreements with some of the main national Jockey
ClubsinBrazil.Codereintendstohave10facilitiesinoperationbytheendof2007,offeringbetting
onlocalandinternationalracesforBraziliancustomers.

In 2007 simulcasting activities in Brazil provided US$ 19.1 million revenues, establishing a major
revenueincreaseincomparisontoactivitiesin2006.

Recently,inMarch2008theMinistryofAgricultureunderpressurefromLaCaixarevokedNormative
InstructionNo.27.InaccordancewiththerevocationdecreeissuedbytheMinistryofAgriculture,
authorized jockey clubs have now until the end of April 2008 to cease international simulcasts or
face prosecution under Brazil's Criminal Contravention Act. Codere and the Brazilian racetrack
owners are now looking to use the time remaining to lobby the attorney generals office and the
MinistryofAgriculturetoreexaminetheirstanceoninternationalsimulcasting.

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Online gambling
Brazil federal legislation does not contain any provision related to the possibility of providing
gamblingservicesthroughtheinternet.Governmentofficialsunderstandthat inapplicationofthe
CriminalContraventionAct,theseactivitiesareillegal.Yet,Brazilianauthoritieshavenotbeenable
tostopcitizensfrombettinginwebservicesofferedfromoutsideBrazil.

As a new development, Deputy Luis Carlos Hauly has submitted a bill to the Brazilian Chamber of
Deputies that would establish specifically that online sport betting activities are illegal. The bill
proposestheprohibitionof...betsonallsportseventsthroughanymethodofdatatransmission,
especiallytheworldwideweb,inthenationalterritory,includingseaorairspace.Theonlybetting
gamesexemptfromthelegislationwouldbesportsbettinggamesspecificallyauthorisedbylawand
operatedbystateandfederallotteries,includingCaixaEconmicaFederaldoBrasil.

Thebillalsoestablishesthatnotonlytheillegaloperatorwillbeprosecuted,butalsotheplayerand
themanagersofthosefinancialinstitutionsthat,directlyorindirectly,participateintheprocessthat
culminatesinthecompletionofthebets.ThisproposalisbeingreviewedbytheEconomy,Industry
andCommercePerformanceCommission.

In some way, this new legislative proposal shows how the 1941 Criminal Contravention Act is an
outdatedpieceoflegislationandcannotdealwithnewformsgambling,suchasinteractivegaming.
Formoreinformation,seethefollowingnewsarticle.

Money Laundering
ThelegislativeframeworktoconfrontmoneylaunderinginBrazilissetby1998sLaw9613.Thislaw
establishes the definition of the money laundering offence and the measures to combat these
activities. This law creates the Conselho de Controle de Atividades Financeiras (COAF). This entity
has been established in order to pursue, investigate and sanction any activity related to money
laundering crimes. The COAF also issues directives to regulate activities of industries that may
facilitatemoneylaundering,suchasgambling.

Resolution3issuedbytheCOAFdealswithLotteriesandentitiesrelateddirectlyorindirectlywith
thedistributionofanyproperties(money,realestateorothergoods)throughlotterygames.Those
entities must identify all prize winners and keep a register of all prizes of more than BRL 10,000
(approx.US$5,240).Theregistermustincludetheprizedescription,itsvalue,andthedatethatit
was handed over. This register must include the prize winner name, identification document, and
thewinnersaddress.

Lottery operators must pay special attention to prizes or distributions that may represent serious
indications of or be related to the crimes defined in Law No. 9613. The following activities or
situationsmustbereported:

A sudden and continued increase in the collection of a certain product, in a particular

locationorestablishment(especiallyproductswithahigherprobabilityofwinning),followed
byanincreaseinthefrequencyofprizesforthesamelocationorestablishment.

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Paymentsofthreeormoreprizesinvaluesequaltoorhigherthan800UFIR(BrazilianTax
Unit Reference) to the same CPF (taxpayer identification number) holder within twelve
months.
Asuddenincreaseofhighvaluebetsinoneparticulartypeofgame,withthepossibilityof
coveringasignificantproportionofthewinningcombinations.
Other prize distributions that due to the features concerning the parties involved, values,
formsofexecution,andtypeofinstrumentsusedmayindicateorberelatedtothecrimes
definedinLawNo.9613.

Resolution5setsforththeprocedurestobefollowedbythelegalentitiesthatoperatebingoand/or
similargames.Bingooperatorsmustidentifyallprizewinnersandmaintainupdatedrecordsofany
deliveryand/orpaymentofprizeswithvaluesequaltoorhigherBRL2,000.00(approx.US$1,050).
Thisrecordmustcontaininformationonthetypeofprizes,thedescriptionoftheassets,thevalues,
dates of delivery and/or payment. Also, it must contain the name of the winners, identification
documents,andaddress.

Operatorsmustreportanyofthefollowingsituationsoractivities:

Aplayerbetsanamountdisproportionatetotheprizeexpectation.
Amonthlyaccumulationofprizesbythesamewinner,inmorethanonedrawing,ofmore
thanBRL5,000.00(approx.US$2,620).
Aquarterlyaccumulationofprizesbythesamewinner,inmorethanonedrawing,ofmore
thanR$10,000.00(approx.US$5,240).
Anannualaccumulationofprizesbythesamewinner,inmorethanonedrawing,ofmore
thanR$30,000.00(approxUS$15,700).
Thepaymentofprizesofvalueshigherthantheamountscollected.
Situationsinwhichthewinnerisconnected,atthesametime,tothesportingentityandto
theentitysadministratorand/oroperator.
Otheractivitiesthat,duetothefeaturesconcerningthepartiesinvolved,amounts,formsof
execution,typeofinstrumentsused,orthelackofeconomicorlegalgrounds,mayindicate
orberelatedtothecrimesdefinedinLawNo.9613.

Further Developments
Brazilsstatusintheeyesoftheglobalgamingindustryisnodifferenttothoseofothersectorsand
its gaming market must be considered the most coveted and problematic of all Latin American
countries.

It is difficult to predict whether Brazilian authorities will belifting the casino ban or regulating the
bingoindustryintheimmediatefuture.Yet,unemploymentisstillveryhighinBrazilandthecountry
has a serious level of poverty. By passing appropriate regulations on bingo houses and lifting the
casino ban, the government would stand a good chance of making significant progress in dealing
withtheseissuesasthegamblingindustrycouldbeagoodsourceofnewemployment.Furthermore,
theliberalizationofgamblingactivitiescouldprovidetheGovernmentanewsourceoftaxrevenues
thatwouldallowittofundmoredevelopmentplans.

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In the case of bingo, after years of trying to pass bills to ban bingo lounges, one bill has been
presented,thatifitisapproveditwillallowthecontinuityofbingoactivitiesinBrazilandmayseta
bingoandslotmachineregulatoryframework.Amongstotherissues,thebillproposedbySenator
GaribaldiAlvesFilhorulesthattheadministrationandcontrolofbingoandslotmachineswillpassto
state authorities and introduces the possibility of providing bingo games by electronic means. The
BrazilianBingoAssociationareoptimisticofthesuccessofthisprojectasSenatorAlveshasbeenjust
electedHeadoftheBrazilianSenate.Yet,it hastotakenin considerationthatmanypreviousbills
havestalledinBrazil'sgrindinglegislativesystem.

Additionallytothisbingobill,thelatestinitiativeofPresidentLula'sGovernmenttoregulatebingo
activitiesprovidesnewhopestobingooperatorsinBrazil.However,itisimprobablethatanynew
bingo regulation will be issued within the first half of 2008. On the other hand, the Government's
initiativewillnotcoverslotmachineoperations,leavingthisindustryinalegallimboandinpractice,
remainingoutlawedintheBrazilianmarket.

Inthecaseoflotteries,theFinancialActivitiesControlBoard(COAF)hasbegunareviewintoexisting
lottery regulations. Reporting responsibilities are being reviewed with the COAF working in
conjunction with the Federal Bank to promulgate new regulations covering the lottery sector to
ensure transparency is enhanced. This review follows unsubstantiated claims of corruption and
moneylaunderingamongstlotteryemployees.[SeerelatedGamblingComplianceArticlehere.]

Deputy Alves Gaming Bill

AtthebeginningofSeptember2008theCommissionofEconomicDevelopment,IndustryandTrade
of Brazil Deputy Chamber approved a gambling bill proposed originally by Antonio Mendes and
amended by Deputy Vicentinho Alves. If this bill is approved by the Brazilian Deputy and Senate
plenary,itcouldmeantheendofthebingoandslotmachineregulatoryuncertaintyinBrazil.

Aninterestingissueregardingthisbillisthatitprovidesamuchmoreliberalapproachtogambling
thanotherbillsproposedintheBrazilianCongress.

Firstofall,itopensthepossibilityfortheinstallationofcasinosinBrazil,apossibilitythathasbeen
closedsincethegovernmentofEuricoGasparDutrabannedsuchgamingactivityin1946.According
tothebill,casinoscouldonlybeinstalledintheNorth,NortheastandMidWesternregionsasaway
of promoting economic development in such areas. Licences will be issued for a 10 year period
throughapublictenderprocess,withthepossibilityofextendingthelicencefor10additionalyears.

Initially,only6casinoswillbeauthorized,allocatingtwoineachregion.After5years,anassessment
willbemadeinordertoseewhethermorelicencesshouldbeissued.

Thebillalsoauthorizestheexploitationofvideolotteries(slotmachines)andbingo.Operatorswould
be able to exploit videolotteries in casinos and bingo venues. Video lotteries should award prizes
that cannot be inferior to 85 percent of the total collected bets, including these amount the
applicable30percentIncomeTax.

Accordingtothebill,operatorswillhavetopaya15percentroyaltycalculatedovertheirgamingnet
revenue(collectedbetslessthepaidprizes).

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Oneofthepositiveaspectsofthisbillisthatitconsolidatesproposalsmadebyotherbills(BillNo.
2944/04,2254/07and3489/08),reducingthenumberofcontradictorygamingbillsunderdiscussion
in the Brazilian Congress (in September 2007 there were 45 gaming bills under discussion in the
Brazilian Congress). Also, while approving Deputy Alves' bill, the Commission of Economic
Development, Industry and Trade also repealed a series of law bills that proposed the banning of
bingo and slot machines operations in Brazil (specifically Bills Nos. 1986/2003, 2999/2004 and
3492/2004).

Yet, Deputy Alves gaming bill still has a long way to go before it can be discussed in the Deputy
Chamber'splenary.ThebillhasjustbeensubmittedtotheCommissionofFinanceandTaxationfor
discussion,andlateritwillhavetobereviewedbytheCommissionofConstitutionandJusticeand
Citizenship.

AnotherhurdlethisbillfacesisthefactthataftertheWaldomiroDinizscandal,LulasGovernmentis
opposed to the possibility of gaming venues being permitted to install slot machines, preferring
instead to proceed cautiously towards the regulation of gambling businesses in Brazil. Therefore,
President Lula could oppose the enactment of a gaming law that includes slot machines as a
permittedgamingactivity.

Regulator Contact Details

CaixaEconomicaFederal
SBSQuadra04Lotes3/4EdSede,20andarBrasiliaDFBrazil
70092900

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