The Rio de Janeiro State Lottery (Loterj) has filed for a preliminary injunction in response to a federal lawsuit seeking to prevent its licensees from offering betting services across Brazil. The case, filed by the Attorney General’s Office (AGU), marks a significant legal conflict between Loterj and the federal government, with the Supreme Federal Court set to make a key ruling.

The AGU’s lawsuit, submitted on October 11, contends that Loterj’s operations overstep their legal boundaries by permitting licensees to function beyond Rio de Janeiro state. Federal authorities argue that gambling regulation across the country falls within their jurisdiction, not the individual states. This lawsuit is the latest in a series of legal battles between the two entities as Brazil’s gambling market prepares to go live nationwide in January 2025.

Loterj, however, disputes the federal government’s stance, asserting that its licensees are legally authorized to operate nationwide. The state regulator argues that its interpretation of the law allows its licensees to function across Brazil, citing Article 35-A of the gambling regulations under Law No 14,790. This law, according to Loterj, provides legal grounds for its activities despite the federal lawsuit.

AGU’s Arguments Against Loterj’s Operations

The federal government’s lawsuit seeks to overturn a recent ruling by the Federal Regional Court, which had initially sided with Loterj. The AGU asserts that Loterj is violating national laws by allowing betting services to be provided beyond Rio de Janeiro’s borders. In its filing, the AGU emphasizes that Loterj’s lack of a geolocation system enables bettors from other regions to place wagers, effectively bypassing federal regulations.

The AGU’s lawsuit also critiques Loterj’s anti-money laundering and counter-terrorism measures, describing them as inadequate. According to the AGU, the federal government is responsible for regulating activities that could affect national security and economic integrity, and allowing Loterj’s licensees to operate without proper oversight raises significant concerns. The lawsuit further claims that the unrestricted nationwide operations of Loterj licensees create an uneven playing field, impacting competition among Brazil’s states.

A key concern for the federal government is the potential for a “tax war” between states. Officials worry that, if Loterj is allowed to continue nationwide operations, other states could follow suit, weakening regulatory standards and increasing the risks of illegal activities such as money laundering.

Loterj’s Legal Defense

Loterj has responded by filing a motion with the Supreme Federal Court, requesting that the AGU’s lawsuit be dismissed. In its filing, Loterj contends that the federal government has failed to provide sufficient evidence of legal violations. It insists that its licensees are in compliance with all applicable laws and that it has taken steps to ensure that operations are restricted to Rio de Janeiro despite the AGU’s claims.

Loterj’s filing argues that the delay in federal gambling regulations has encouraged the growth of illegal gambling activities. “It is important to emphasize that it is precisely the Union’s conduct that has created an environment conducive to illicit practices,” the state regulator said in its objection. Loterj also criticized the federal government for allowing a list of operators to continue operating under insufficient oversight, accusing some of the approved companies of being based in tax havens.

Additionally, Loterj maintains that its licensees contribute significantly to both state and federal tax revenues. The agency claims that a ruling in favor of the AGU could result in a substantial loss of tax revenue and economic disruption. The financial impact, Loterj argues, would harm not only the accredited companies but also the national treasury.

Potential Outcomes and Industry Implications

The stakes are high for both parties involved. Should the Supreme Federal Court side with the AGU, Loterj could be forced to restrict its licensees to operating exclusively within Rio de Janeiro, a move that would likely lead to immediate losses in tax revenue and disrupt the state’s gambling market. On the other hand, if Loterj succeeds in its bid to continue national operations, it could set a precedent for other states, potentially leading to further legal disputes over the jurisdiction of gambling regulation in Brazil.

Loterj’s case has gained attention not only for its legal implications but also for its potential impact on the broader gaming industry in Brazil. The AGU has highlighted the importance of creating a cohesive regulatory framework for the country’s gambling market, set to officially launch next year. At the heart of the dispute is whether state lotteries should have the authority to regulate gambling on a national scale, or whether that power should rest exclusively with the federal government.

With Brazil’s legal gambling market on the verge of opening, the outcome of this case could shape the industry’s future. While the Supreme Federal Court deliberates on the injunction, Loterj remains firm in its belief that its licensees have the right to operate across the country.

Source:

Loterj Seeks Preliminary Injunction to Continue National Betting Operations, igamingbusiness.com, October 14, 2024.

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