Brazilian government challenges Loterj’s authority to license nationwide online gambling operations | Yogonet International

The Attorney General’s Office (AGU) has initiated a legal battle by filing a lawsuit with the Supreme Federal Court (STF) to prevent the Rio de Janeiro State Lottery (Loterj) from permitting online sports betting companies to operate across Brazil. The AGU is seeking a preliminary injunction to immediately halt the operation of such activities outside the state’s borders, arguing that Loterj’s current accreditation rules fail to enforce geographic restrictions effectively.

In the lawsuit, the AGU asserts that Loterj’s regulations allow companies to operate their betting services nationally, undermining the federal structure and breaching fair competition principles. The AGU also points out that Loterj’s system lacks a reliable geolocation mechanism to ensure that bets are genuinely placed from within Rio de Janeiro.

The Office claims that this approach effectively enables unrestricted access to online betting across the country, which it argues poses significant challenges to both the regulatory landscape and national security.

Loterj adopts a system in which bettors declare that the bets will be made in the state of Rio de Janeiro, the lawsuit claims, adding that the absence of geolocation technology does not restrict betting from other regions. This loophole is indicative of broader regulatory shortcomings that have raised alarms regarding potential money laundering and the financing of terrorism, the AGU says.

The AGU’s petition highlights the inconsistency of Loterj’s practices with existing federal laws, particularly those outlined by the Ministry of Finance. It references states like Paraná and Maranhão, which have implemented stricter geolocation requirements for lottery services, illustrating the disparity in regulatory standards across Brazil. 

Furthermore, the lawsuit emphasizes the potential for a “tax war” scenario, wherein states might lower regulatory standards to attract betting operators, jeopardizing not only local governance but also public safety and financial integrity.

A technical note from the Prizes and Betting Department of the Ministry of Finance, attached to the lawsuit, reinforces this concern, arguing that unrestricted national operations could worsen risks related to money laundering and cyber threats.

The AGU also accuses Loterj of neglecting to establish necessary regulations in line with the Money Laundering Law, further endangering efforts to combat illicit financial activities. A separate report from the Financial Activities Control Council (Coaf) highlights that the geolocation criteria adopted by Loterj could facilitate a surge in money laundering operations, as it would allow individual states to become hotspots for international betting.

In response to the AGU’s lawsuit, Loterj is contesting the claims and has requested a preliminary injunction to dismiss the lawsuit. It argues that its licensees are justified in operating on a national scale, despite a recent ruling from the Federal Regional Court that had favored the AGU’s position.

Loterj maintains that its regulations enable it to manage public lottery services for a five-year term, and it criticizes the federal government’s actions as exacerbating the growth of the black market by delaying regulatory measures for legal betting.

The organization asserts that the government has contributed to the conditions that enable illicit practices, including money laundering, by failing to provide a clear regulatory framework for legitimate operators.

The conflict highlights the complex dynamics of Brazil’s emerging legal betting market, which is set to launch on January 1, 2025. The AGU has expressed concerns that the ongoing dispute not only affects the regulatory landscape but also poses risks to public safety and financial accountability.