A technical note from the Federal Public Prosecutor's Office argues that the game should remain underground.
The Federal Public Ministry (MPF) is in favor of maintaining clandestine gambling in Brazil. This understanding was made clear in the technical note distributed on the evening of last Thursday (23) by the Secretariat of Institutional Relations (SRI), which reiterated its opposition to the project to regulate gambling through PLS 186/2014, in progress in the Constitution and Justice Committee (CCJ) of the Federal Senate, which may be considered and voted on next Wednesday (29).
The note signed by the Secretary of Institutional Relations of the Federal Public Prosecutor's Office, Deputy Attorney General Carlos Alberto Vilhena, contains errors, inaccuracies, rhetoric, distorted interpretations, unproven claims based on newspaper reports, and an impossible promise. The prosecutor's text also acknowledges that the substitute bill presented by Senator Benedito de Lira (PP-AL) in the CCJ (Committee on Constitution, Justice and Citizenship) sought to introduce modifications to the text to "improve the way in which gambling will be implemented in Brazil." The technical note highlights these modifications:
By way of example, some of the modifications made by are cited.
substitute:
i) change in nomenclature for games of chance, including the possibility of games of chance through electronic means;
ii) assigning authority to the States and the Federal District to oversee establishments accredited for the operation of games of chance, excluding casinos, which will remain under the responsibility of the Federal Executive Branch;
iii) identification of players by accredited establishments. The substitute bill stipulates that establishments must identify players who receive prizes exceeding R$ 10.000,00 (ten thousand reais) and inform the Federal Executive Branch;
iv) an increase in the value of fines that may be applied in the case of administrative infractions, stipulating that the amount will be allocated to the collecting entity for investment in public safety;
(v) prohibition of minors under eighteen years of age from remaining in establishments that operate gambling establishments;
vi) requirement for a warning message to be displayed about the dangers of gambling in establishments of chance;
vii) inclusion of legal entities authorized to operate gambling in the Money Laundering Law, so that they are required to register clients and report transactions to the Council for the Control of Financial Activities (COAF);
viii) a determination that the Central Bank of Brazil take measures, respecting the guidelines established by the National Monetary Council, to prevent the use of payment instruments, such as credit cards, in electronic gambling games administered by unaccredited companies.
Even with the changes made, the Public Prosecutor's Office still suggests rejecting the bill. "The fact that the rapporteur presents a more detailed explanation of how the legalization of gambling will occur does not resolve the core problem of the project, which lies in the very essence of legalization, to which the Federal Public Prosecutor's Office reiterates its opposition. The problem with the project is not in how the eventual implementation of the legalization of gambling will be carried out, but in the impossibility and inconvenience of legalizing the activity."
The Public Prosecutor's Office defines the project as "the broadest and most permissive of any other ever discussed by the National Congress" because it legalizes market demand, hands over operation to the states, and, believe it or not, because it "foresees a very high rate of return for the bettor."
The prosecutor demonstrates, at the beginning of the document, complete ignorance of the subject matter, since physical games offer high prizes for bettors, unlike prediction contests or lotteries. The average payout for Caixa lotteries is 32,4%. This understanding alone would disqualify the opinion of the author of the technical note, but BNL analyzed the content to clarify and show that they are completely mistaken.
"Impossibility and inconvenience"
How can it be impossible to legalize this activity when, among the 193 UN member countries, 75,52% have legalized gambling, and Brazil is among the 24,48% that have not legalized this activity, the majority of whom are Muslim? The admission of "impossibility" ends up being an admission of incompetence on the part of the Brazilian State.
The "inconvenience" of not creating a regulatory framework for this sector in the country is a desire of the prosecutors of the Public Ministry, who prefer to keep gambling clandestine or "marginal," as expressed in the technical note from the Public Ministry, which cites the article entitled "The legalization of bingo from the perspective of money laundering," by the Public Prosecutor Deltan Dallagnol.
This article contains an unusual statement from the head of the Lava Jato task force at the Federal Public Prosecutor's Office:
“On the other hand, keeping bingo activity within the realm of illegality prevents it from being used to “launder” funds, since gambling businesses tend not to grow excessively when operating outside the law, and if the criminal declares earnings from gambling, such amounts will be subject to forfeiture as they constitute proceeds of illegal activity, remaining “cold”.”
Opinion of the judge specializing in money laundering.
This is not the opinion of the expert in combating financial crimes, Judge Fausto De Sanctis, of the Federal Regional Court of the 3rd Region and author of numerous books on the subject, such as Organized Crime and Money Laundering (Saraiva) and Economic and Financial Delinquency (Editora Forense). Fausto De Sanctis comments on activities that operate anonymously and cites gambling as one of these segments. The judge also suggests, in the event of the legalization of gambling, the creation of control mechanisms to facilitate the oversight of this activity, as foreseen in the substitute bill to PLS 186/14 by Senator Benedito de Lira.
“In the case of casinos or bingo halls, any authorizing law, even if it provides for the payment of relevant taxes with a specific purpose, must require their computerization, as well as the possibility of monitoring their financial transactions online and in real time, with the possibility of inspection and control by the Council for the Control of Financial Activities (Coaf) or a sector body that may eventually be created. The obligation to monitor their users (“know your customer”) and the awarding of prizes only to the winner, etc., should also be conditions imposed on the sector.”
The Public Prosecutor's Office uses COAF's opinion on Bill 2254/07 to reference Bill 186/2014.
The technical note from the Public Prosecutor's Office is reckless in using an opinion from the president of the Council for the Control of Financial Activities – COAF, Antônio Gustavo Rodrigues, during the discussion of Bill 2254/07 in April 2010, to reference Bill 186/2014.
Regarding Bill 2254/07, the COAF representative stated that "the mechanisms to mitigate the risks of gambling establishments included in the current proposal are not adequate," and that COAF and the Federal Revenue Service – the bodies responsible for oversight according to the proposal – "are not prepared for this."
In the text distributed to the press, which is not included in the content of the technical note, the Social Communication Secretariat of the Attorney General's Office adds that during the discussion of a similar project in 2007, the bodies that would be responsible for controlling gambling stated that they are not structurally and technically prepared to oversee these activities.
In fact, the debate on Bill 2254/07 did not take place in 2007 as stated above, but in March 2010, that is, seven years ago. Indeed, the Ministry of Finance and its affiliated bodies, such as the Council for the Control of Financial Activities (COAF) and the Federal Revenue Service, do not have the structure to oversee gambling, but it is worth noting that in the last five years, technicians from the Ministry of Finance have been preparing for this task through participation in international congresses, world fairs, and courses such as the extension course 'Strategic Perspectives in The Gaming Industry', promoted by the University of Nevada (USA) at the Redfield UNR Campus in Reno, and the regulation course 'Essentials of Gaming Law & Regulation', at the University of Nevada, Las Vegas campus.
Furthermore, the Executive branch can only create a structure for monitoring and controlling gambling after legalization by the National Congress and regulation by the Executive branch. Therefore, it is entirely correct for representatives of the relevant bodies to state that they are not structurally and technically prepared to monitor gambling for a simple reason: currently, it is illegal.
The technical note even suggests the recommendation from the plenary meeting of the National Strategy to Combat Corruption and Money Laundering (ENCCLA), held in November 2015, where participants decided to recommend "to the National Congress that, in the eventual consideration of legislative proposals to authorize the operation of gambling, international standards for the prevention of money laundering be taken into account, including the need for strict administrative control by a specialized body."
In other words, the creation of a regulatory agency exclusively dedicated to overseeing and controlling gambling, in accordance with best practices and international standards.
Incorrect information leads to a loss of credibility.
The technical note attempts to suggest that PLS 186/14 will allow for uncontrolled growth in the "creation of hundreds of bingo halls and casinos in the short term" and comments that "this projection proves true based on experience, since, during the validity of the Pelé Law, the city of Rio de Janeiro alone housed more than 70 official bingo halls."
It is a misconception to consider that the number of 70 bingo halls is too many for a state with an estimated population of 15 million in 2007. To prevent uncontrolled growth, the rapporteur included in the text the rule that a maximum of one bingo hall will be accredited for every 150 inhabitants in the municipality where the establishment is to operate.
Errors in information lead to a loss of credibility, and in this case, it's not only due to the number of bingo halls, but also the legislation governing these establishments. The State of Rio de Janeiro had 54 bingo halls during the period it was legalized. Furthermore, these establishments were not governed by the Pelé Law, but by the 'Bingo Law' of the Rio de Janeiro State Lottery – LOTERJ.
Failure to read the substitute bill for PLS 186/14
We don't know if it was due to lack of reading, ignorance, or bad faith, but the Public Prosecutor's Office's technical note states that "the project under review does not provide for minimum controls over the revenues of slot machines, the main object of covetousness for future gambling operators, which have always been manipulated to deceive consumers." The document cites a 2007 report from Correio Braziliense , stating that "there are computer programs that manipulate the probability of players winning. In some cases, machines have retained up to 64% of the money wagered. In countries like the United States, where gambling is permitted in some states, the retention of funds does not exceed 10%."
First, it's important to highlight that no computer program is needed to determine the percentage of prize money that a video bingo or video game machine's software will return to the player, as the equipment's own programming defines this payout.
If the prosecutor who signed the note had analyzed Senator Benedito de Lira's substitute bill, he would have noticed the parliamentarian's concern in creating mechanisms for control, protection, and defense of the consumer: "The prizes for video bingo machines must correspond to at least 80% of the total bets per machine." Free competition among operators will result in the growth of this percentage, as is the case in countries like the United States.
The text of PLS 186/14 also stipulates that the licensing of video bingo and video game machines will require certification of these devices by independent laboratories, as is the case in countries such as the United States.
"For the licensing of video bingo and video game machines and online electronic systems that offer games of chance in general in Brazil, it will be mandatory to obtain a technical report from independent specialized laboratories with international recognition and documented experience in providing services to other countries."
§ 1 The laboratories issuing technical reports referred to in the heading must be accredited by the competent federal agency.
Cashless system
Another powerful mechanism regarding betting, included in Senator Benedito de Lira's substitute bill to facilitate control over the money wagered in bingo halls and casinos, is the introduction of a cashless system (prepaid card), which prevents the insertion of coins or banknotes into video bingo and video game machines.
“The control management system (SGC) referred to in § 6 of this article must operate under cashless conditions in bingo halls and casinos, which, for the purposes of this Law, corresponds to preventing the insertion of coins or banknotes into electronic machines and the storage of credits on a card, with the player's identification, in a single account.”
The cashless system is a technology that brings numerous benefits to various types of events and, although it is already widely used abroad, it is still gradually conquering the Brazilian market. Despite the complicated name, the system eliminates the use of cash and credit/debit cards in gambling establishments. For this, chip cards are used that allow the bettor to make a pre-established recharge of a certain amount to spend at the gambling establishment. And all of this is done in an encrypted manner, which guarantees more control, security, and convenience for everyone involved.
Interconnected systems
The substitute bill for PLS 186/14 also stipulates that the regulatory body defined by the regulatory decree must require betting companies to link their betting control systems to those of the tax authority to ensure continuous, real-time monitoring of their activities.
"The Federal Executive Branch may determine, as regulated, that establishments authorized to operate games of chance link their betting control systems to those of the competent tax authority, in order to allow continuous and real-time monitoring of their activities."
Money laundry
The first conclusion of the Public Prosecutor's Office's technical note is that "the bill that legalizes the widespread and indiscriminate exploitation of gambling in Brazil does not create effective mechanisms to control money laundering and tax evasion; on the contrary, it creates new and powerful mechanisms for money laundering."
According to the percentages foreseen in Senator Benedito de Lira's substitute bill, laundering money in gambling establishments in Brazil could represent a high financial cost of up to 63.11% due to the 10% of the value referring to the 'Social Contribution' foreseen in Article 34 of PLS 186/14, and also 16,33% (IRPJ 4,8%, CSLL 2,88%, PIS 0,65%, COFINS 3% and ISS 5%) referring to taxes on the Presumed Profit of a service-providing company. And there is also the withholding of 30% of the prize value related to the Income Tax rate.
An analysis of the tax percentages demonstrates that they are predicting a major misconception, since there are more economically advantageous activities for money laundering in the country and in the world.
The Senate text mandates the inclusion of legal entities authorized to operate gambling games in the Money Laundering Law, requiring them to register clients and report transactions to the Council for the Control of Financial Activities (COAF), and obligating gambling operators to report prizes exceeding R$ 10 and identify winners.
§ 3 The establishments referred to in the heading shall submit to the Federal Executive Branch, in accordance with the regulations, information on players who receive prizes exceeding R$ 10.000,00 (ten thousand reais) at any one time.
§ 4° All players whose prize exceeds R$ 10.000,00 (ten thousand reais) must be duly identified and registered, including their name, address and CPF number, and the registration of minors is prohibited under any title or pretext, and the respective records must be available to all tax authorities in real time (online).
With all the technology available, the argument that legalized gambling could be conducive to money laundering is a fallacy for anyone who studies and understands the subject. Furthermore, taxation proves that laundering money through gambling is expensive and risky, as the 'launderer' will put the money in the spotlight.
Statement from the oversight bodies
The technical note is reckless in stating that "the very bodies responsible for controlling gambling have already publicly expressed the absolute impossibility of monitoring these activities, a circumstance that, in itself, would already warrant the rejection of the bill." The Federal Public Prosecutor's Office concluded this possibility based on statements made by government representatives seven years ago, even then regarding a proposal that was being analyzed in the Chamber of Deputies. There has been no statement yet from the Ministry of Finance regarding PLS 186/14.
The most recent statement from the Executive branch regarding the legalization of gambling was made by the Minister of Finance, Henrique Meirelles, during a public hearing in the Chamber of Deputies on November 21st. On that occasion, the minister said that the legalization of gambling is a complex issue, but it is a matter for discussion within Brazilian society through the National Congress.
There is only one solution for the tolerated gambling in Brazil: legalize, regulate, control, and monitor it.
Inconvenient for whom?
The final conclusion of the Public Prosecutor's Office's technical note highlights that "the bill is inopportune because there is a huge concerted effort underway by law enforcement agencies to dismantle criminal organizations involved in illegal gambling."
It's almost laughable to make the perfunctory statement about the enormous collusion of law enforcement agencies in combating illegal gambling.
Despite all the work done by state and federal police, the Public Prosecutor's Office, and the Judiciary, the tolerated gambling was not stopped. Neither the prevalence of the triad of criminalization, police persecution, and indiscriminate punishment solved the problem.
For 76 years, law enforcement agencies have been fighting a losing battle…
