Regis Dudena: Bets were blocked due to lack of documents and integrity.

"Some of these companies did not get approval because their authorization requests were deficient. For example, out of the 100 required documents, some only presented 20", says Regis Dudena, Secretary of Prizes and Bets, in an exclusive interview with EXAME.

About to complete a year in office, the secretary was emphatic in saying that the government is not obliged to grant operating authorization to any company and that the management makes a cautious evaluation.

"If we have sufficient elements to, for example, have legitimate doubts about the conduct of this company, the integrity of this company, or the illegal behavior of this company, we may not grant this authorization based on this provision of the law", he states.

Regarding the challenges for the first year of regulation, Dudena does not give a deadline for all unauthorized betting houses to be off the air and says that a joint effort with financial institutions and the Central Bank is necessary to strangle the illegals.

"Bringing down domains will be necessary, but it will have to be complemented. It's not just with this that we will be able to prevent illegal companies from operating in Brazil", he says. "We are trying to identify a way to block the realization of Pix for sending money abroad", the secretary affirms.

Regarding the expected revenue from the taxation of bets and the tightening of regulation to respond to the increase in betting among the poorest, the Finance Secretary states that it is necessary to wait for the sector's data to understand the size and where the bets in Brazil are going.

"I imagine that, after the first year, we will have enough data to assess the impact of the measures and, if necessary, promote changes. We are attentive to correct restrictions that are not effective or to reinforce rules in areas that need more control", he says.

EXAME - What has changed in practice with the regulated market starting January 1, 2025?
Regis Dudena -

What we call the “regulated market” actually started. In practice, the biggest change is that to operate nationally, a company needs to be authorized by the Ministry of Finance.

This ensures that the companies providing the service are Brazilian, even if their partners are foreigners. They need to be headquartered in Brazil, with known directors and using financial institutions regulated by the Central Bank.

Another important point are the rules created in 2024. We regulated issues such as: the system that companies must use; which games can be offered; how the financial operation should be structured; rules for combating money laundering; and rules for protecting bettors, especially linked to mental and financial health. From now on, we know who provides the service and how it is offered. We also have a monitoring and enforcement ordinance, as well as another for sanctioning processes, in case of infractions.

What are the sanctions for those who disrespect the rules?
They start with a warning and, at the limit, reach revocation, that is, losing the authorization. It's not just suspension: they can effectively lose the authorization. Obviously, there must be proportionality between the conduct and the penalty. If the company did something bad enough to lead to revocation, it will lose the authorization and be prohibited from operating in Brazil. If it's something superficial, the first time, it takes a warning. But, if it is repeated, even if they are small deviant conducts, this can escalate and lead to revocation. The fine is also another important point. Fines can reach up to R$ 2 billion.

How will the issue of state lotteries and the case of Loterj be treated?
A decision came out from Minister André Mendonça expressly stating that Loterj is prohibited from providing services outside the state of Rio de Janeiro. This ends the discussion about the possibility of a state lottery operating nationally based on a local authorization.

The interpretation of the text of the law and the Brazilian Constitution, which always seemed very clear to us, was confirmed by the Supreme Court. What the STF decided is that there is a federal law and a national regulatory body, which is the Secretariat of Prizes and Bets of the Ministry of Finance. Only this body can grant authorizations for national operations. This STF decision reinforces that state lotteries can only operate within the limits of their state.

And the case of advertising for companies that only have state authorization?
The law makes it clear that advertising for state lotteries is restricted to the state territory. If a company wants to sponsor a club that operates at a national level, it needs the authorization of the Federal Government. This decision brings legal stability to the sector. Of course, there may still be discussions in the plenary of the STF, but this initial position gives us a very solid basis to ensure that the rules are complied with and that everyone operates legally within the allowed space.

Of the more than 100 companies that were allowed to operate by the end of 2024, only 66 were actually authorized. What happens to those almost 30 companies that did not get the authorization?
For a company to operate until December 31 of last year, during the adaptation period, it necessarily had to have requested the authorization by the publication of the adaptation ordinance, on September 17. That is, those who requested until August 20 should have had an answer still in 2024. Those who requested until September 17 could operate in adaptation until the end of the year.

What is important now is that, from January 1, 2025, only companies with authorization can operate nationally. This is definitive. If a company requested authorization and had the request denied or is still under review, it cannot operate. Without formally granted authorization, whether definitive or provisional, the company is prohibited from operating. And, if it is identified operating, its site will be taken down.

Will the Secretariat take into account if a betting house is waiting for the authorization request and operates illegally?
If a company is operating illegally, that is, without authorization, and is in this approval process, it is illegal. This will be taken into account. Here it is important, something that is not clear to everyone: the law determines that the act of granting the authorization is a discretionary act of the Ministry of Finance, taking into account the public interest.

What does this mean?
It means that we are not obliged to grant authorization to anyone. If we have sufficient elements to, for example, have legitimate doubts about the conduct of this company, the integrity of this company, or the illegal behavior of this company, we may not grant this authorization based on this provision of the law. It is important even for the companies being evaluated to have clarity about this: if the company is without authorization and insists on providing the service, this will be taken into account. And this can, possibly, result in it not getting this authorization because of this behavior.

What were the main reasons that led some companies not to get authorization?
Some of these companies did not get approval because their authorization requests were deficient. For example, out of the 100 required documents, some only presented 20. When notified to complement, they did not bring the necessary documents, so the processes were archived.

In addition, we had a smaller group of companies with integrity problems. This information came from monitoring and enforcement areas or partners such as the Federal Police and the Federal Revenue.

What we do is not a pre-judgment, but a cautious evaluation: if there are legitimate doubts, we prefer not to grant the authorization. Finally, there is a group under analysis because they made relevant changes, such as change of partners or even CNPJ and name. When this occurs, the process is amended and, in practice, goes back to the end of the line. These companies still need to wait for the conclusion of the process to be able to operate.

How does the Secretariat deal with illegal sites that had their domains taken down, but that may come back online? Does the government believe that the mechanism they created at the end of last year will be sufficient to prevent these unauthorized houses from continuing to operate?
I would say that bringing down domains will be necessary, but it will have to be complemented. It's not just with this that we will be able to prevent illegal companies from operating in Brazil.

Here there is a first thing that is: the existence of authorized and legal companies tends to lead bettors to bet on these companies. If I have a doubt whether the company is serious or not, and I know that one of them is authorized by the Ministry of Finance, the tendency, on average, is that bettors prefer those that are authorized. So, that's the first step. The existence of a legalized market is a good start for us to know how to deal with and for bettors to know where to bet more safely.

And what is the other step?
We will continue this tracking and will continue to bring down these sites. You are right when you say that there is a possibility of them reappearing with another domain. But this becomes costly for them, because they eventually lose their customer base and the ability to make their brand prevail in the market. Normally, these companies that keep changing domains are more fraudulent than those that want to establish themselves in the market.

And the role of the financial system?
In article 21 of Law 14.790, there is a very important provision that prohibits financial institutions and payment institutions from having a relationship with unauthorized betting houses. We are working together with the Central Bank on mechanisms to make service providers, FIs (financial institutions) and IPs (payment institutions), stop providing services to these betting companies that do not have authorization.

Is there a forecast to block transactions?
We are trying to identify a way to block the realization of Pix for sending money abroad. Basically, how it works today: you have companies that operated until last year in Brazil, both the serious ones and the less serious ones. They used intermediaries, who opened accounts in financial institutions or payment institutions and centralized the resources of the bets. These intermediaries sent the money to a currency exchange bank, which then sent the resources abroad, where the operating company was located. When we identify this flow, it will be possible to block this outflow of resources. The idea here is to have a set of elements. Bringing down domains is relevant, it's important, but it's not enough alone. It needs other complementary mechanisms.

With the ordinances and the list of authorized companies published, does the Treasury have a forecast of when the irregular sites will stop operating?
I would like to be able to say that in two weeks we will not have any unauthorized site operating, but we know that it will be a constant challenge. New companies should appear, and we will need to act with monitoring and enforcement all the time. The Central Bank also needs to act in their area. The trend is that, over time, the economic incentives to operate illegally in the country will decrease more and more.

How does it compare the illegal betting market with others that operate in Brazil?
It is important to understand that the legalized market creates direct competition with illegal companies. There is a difference compared to other types of illegal market, such as streaming or cable TV, where the product offered by illegal companies is the same, just cheaper.

In the case of betting, the economic incentive to bet on an illegal company is not so evident. When the bettor bets on an authorized betting house, he has much more guarantees that his rights will be preserved, that his mental and financial health will be protected, and mainly, that he will receive the prize if he wins.

With illegal companies, the bettor exposes his finances, his mental health, and has no guarantee that he will receive the prize. So, what we believe is that, over time, operating illegally will become less and less viable, both by the action of the regulator and by the market adjusting. But we know that it will be a task of continuous monitoring.

Is there a revenue forecast for 2025?
We still do not have an exact forecast, because we do not know the total volume of resources that the market will move. Now that we have started to receive the financial data from the companies, we will be able to better estimate the annual revenue. We still have a high number of companies with pending authorization requests. Some of them should be authorized at the beginning of this year, which may generate new grants. There is a continuous flow of requests, so revenue will also continue to occur over time.

With the discussion about the increase in betting among the poorest, sectors of society and parliamentarians claim that regulation needs to be reviewed. How does the Secretariat see this issue?
We have always been clear that regulation is something that needs to be followed up. It is not something static, created once and that cannot be modified. What we intend to do now is to observe how the market will react to the rules we implemented and assess whether they are working as planned. We make decisions based on clear reasons and specific tools to mitigate problems identified in the sector. We are confident that we got it right on average, but we know that, eventually, situations may arise that will require adjustments.

The legislature pointed out that the prohibition of betting might be a solution. What is the position of the Secretariat on this?
It is not the role of the Secretariat to say that the legislator cannot or should not address the issue. What we can do as regulators is to study, monitor, and, if necessary, technically point out what works or not. Regarding the total prohibition of betting, our reading is that an absolute prohibition would simply throw the demand into the illegal market. We have seen this happen elsewhere, and we have a history of it not working.

Do you believe we will have enough data this year to understand the sector?
I imagine that, after the first year, we will have enough data to assess the impact of the measures and, if necessary, promote changes. We are attentive to correct restrictions that are not effective or to reinforce rules in areas that need more control. Regulation needs to be dynamic, following the market and responding to its needs in a technical and efficient way. This will only be possible with patience and the use of concrete data to base any future decision.

Source: EXAME