Official magazine of the International Masters of Gaming Law
®
MALTA MARKET FOCUS
INTERNATIONAL MASTERS of GAMING LAW MAGAZINE
VOLUME 4 | NO. 1 | JANUARY 2024
NEW POINTS ON THE COMPASS: DEVELOPMENTS IN BRAZIL & INDIA
PLUS: JONUM REGULATIONS IN FRANCE CREATE A MARKET FOR NFT-BASED GAMES THE CASE FOR REGULATING SKILL GAMING A.I. IN GAMING SWEEPSTAKES RULES RELAXED IN QUEBEC NEW AML/CFT RULES IN ARGENTINA BRING GAMING UNDER THEIR UMBRELLA
..& MUCH MORE!
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IMGL MAGAZINE | JULY 2023 IMGL MAGAZINE | JANUARY 2023
MALTA’S FATF GREY-LISTING IMGL OFFICERS 2024
Officers of IMGL for 2024
SUSAN BREEN Secretary MISHCON DE REYA LONDON +44 20 3321 7434 SUSAN.BREEN@MISHCON.COM
QUIRINO MANCINI President TONUCCI & PARTNERS ROME, ITALY +39 06 322 1485 QMANCINI@TONUCCI.COM
ERNEST C. MATTHEWS IV Vice President, Affiliate Members INTERNET SPORTS INTERNATIONAL LAS VEGAS, NEVADA +1-702-866-9128 ERNEST@ISISPORTS.COM BIRGITTE SAND Vice President, Affiliate-Regulator Members BIRGITTE SAND AND ASSOCIATES COPENHAGEN, DENMARK +45 24 44 05 03 BS@BIRGITTESAND.COM
MARC DUNBAR Executive Vice President JONES WALKER TALLAHASSEE, FLORIDA +1 850 214 5080 MDUNBAR@JONESWALKER.COM
PETER KULICK 2 nd Vice President, Treasurer DICKINSON WRIGHT PLLC LANSING, MICHIGAN +1 517 487 4729 PKULICK@DICKINSONWRIGHT.COM COSMINA SIMION 1 st Vice President SIMION & BACIU BUCHAREST, ROMANIA +40 31 419 0488 COSMINA.SIMION@SIMIONBACIU.RO
KATHRYN R. L. RAND Vice President, Educator Members UNIVERSITY OF NORTH DAKOTA LAW SCHOOL GRAND FORKS, NORTH DAKOTA
+1 701 777 2104 RAND@LAW.UND.EDU
KATE LOWENHAR-FISHER Assistant Treasurer EXECUTIVE VICE PRESIDENT, CHIEF LEGAL OFFICER EVERI HOLDINGS INC
IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | JANUARY 2024
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PRESIDENT’S WELCOME
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Spreading our wings in 2024
QUIRINO MANCINI President INTERNATIONAL MASTERS OF GAMING LAW
I
think we can look back on 2023 as a year when the IMGL really hit its stride again after the disruption of Covid. It was great to see so many of you at the numerous industry events throughout the past twelve months including our receptions at ICE and G2E which were, as ever, oversubscribed. We had two exceptional conferences of our own and I must pay tribute to the chairs of the organising committees, Greg Giordano and Dr. Simon Planzer, for their tremendous work on both the content and social programs. We also enjoyed the support of a large number of sponsors whose generous contributions allowed us to put on a real show in Napa and Zurich. We are already at an advanced stage of planning our 2024 conference season, between our own Spring and Autumn events, and multiple Masterclass panels we will deliver in connection with other important industry shows. In particular, April will see us head to Tampa Bay in Florida for what is shaping up to be another great learning and networking opportunity, while we will return to Rome in October, exactly 20 years after our first event was held there. We will also announce the winners of our second Student Writing competition following the successful launch at Napa. This is a contest we hope will become a permanent attachment to our bi-annual conferences in an effort to make gaming law an officially recognised and fully respected specialist branch of law. The Rome conference is a partnership with IAGR, part of a push to foster our already strong links and relationships with international gambling
regulators. Another part of this initiative is a joint IMGL-IAGR Masterclass being held in London to coincide with ICE in February. This invite-only event for regulators, industry leaders and IMGL general members is another way in which we will be leading the conversation around gaming law in 2024. One of my priorities as president is to expand the reach of the IMGL into new jurisdictions recruiting new members as we go. Whether that is regulators, advisors, lawyers in practice, C-suite executives or senior compliance officers, the aim is to offer the global gaming industry an ever broader and inclusive gathering and networking place to exchange information, views, ideas, and last but not least, to make new friends. Welcoming our first Ukrainian regulator to our Zurich conference and hearing reports of members spreading the word at the East European Gaming Summit and SBC’s LatinoAmérica Summit shows that this work continues. I am also excited about developments in Africa and would value the opportunity to talk with members about how we can increase our presence here too. It is not all about geography: I believe we also have the chance to increase our representation among lawyers who work in-house for gaming companies. I hope our drive in all these directions translates into new and diverse members, conference attendees and, of course, readers of the IMGL Magazine. Speaking of which, I hope you enjoy this edition and I would like to take the opportunity to wish you every success in 2024.
Quirino Mancini
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IMGL MAGAZINE | JANUARY 2024
EDITORIAL
The IMGL Magazine reaches from BRICs to clicks, from A.I. to A.M.L.
B
SIMON PLANZER PHD , Editor in Chief IMGL MAGAZINE
RICs was an acronym coined in the early 2000s identifying Brazil, Russia, India and China as the four rising global
2024 could well be, by contrast, the year of breakthrough and where things change. Brazil’s multi-layered system of government finally coalesced around Law No. 14,790/23 which brings both sports betting and casino gaming within the country’s legal and, crucially, tax frameworks. The unregulated market in the most populous Latin-American country was estimated at around US$25 billion in 2022 making it one of the biggest commercial stories outside the US in recent years. Whilst the details are yet to be ironed out, it is already clear that international operators are pointing their compasses towards Latin America. Within these pages we have details and an initial analysis of both the law and the opportunities it brings. India’s doors may not have been opened yet quite as dramatically but we have kept covering several important developments in the past few years. The powers of state-wide authorities to impose religious or culturally based restrictions on gambling have been challenged in the country’s parliament and courts. The result has been a
economic powers and representing large parts of the global population. In the intervening 20+ years all four have risen up the GDP ranking (with only Russia being left being and sitting outside the top-10). From the perspective of the regulated gambling industry, however, it has not been the same success story. No matter how fast these economies have grown, none of them has represented a significant opportunity for expansion by international operators into regulated markets. China continues to maintain its ban on onshore gambling and has used its economic and political power under President Xi to curtail offshore gambling activities in the surrounding region. Russia has been off limits to most foreign investors for obvious reasons in the last couple of years and even before launching its war on Ukraine, was not a hotspot of foreign investment.
For the other two BRICs, Brazil and India,
Contents 6
Brazil scores a winning goal with sports betting & igaming regulations France opens market for games based on monetizable digital assets
13 18 22 26 32 38 41 45 50 54 58
Artificial Intelligence in the Gaming Industry
Void In Quebec: Sweepstakes Contests in La Belle Province
Preparing for India’s new data protection law
Full revamp of Argentina’s AML/CFT regulations applicable to the gambling sector
Unregulated Skill Gaming – Is it time for regulation? How do virtuals with AI technology get licensed? Time for Africa? Regulator’s big beasts visit Botswana
The case for legalized gambling: how legal, regulated sports betting benefits society
The domino effect of regulation
IMGL’s spring conference in Tampa Bay will banish the winter blues
IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | JANUARY 2024
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EDITORIAL
steady, gradual expansion which should gain pace as the country’s laws swing into line with international regulatory developments. One area which has become the new normal around the world is the introduction and strengthening of personal data protection and we hear from colleagues in India on this topic. The BRIC acronym metamorphosed from an Investment Banker’s shorthand to a powerful economic grouping of nations adding new members along the way. One of the first, in 2010, was South Africa. Since then, sub-Saharan Africa has been one of the fastest growing regions for gaming worldwide. South Africa has hosted gambling conferences, notably one by IAGR, and last year Botswana was the host as IAGR held its annual meeting in Gaborone. The event highlighted the growth potential of the massive continent, as we report in these pages. We feature many other reports, too in this issue. From colleagues covering gaming related AI aspects to an AML revamp in Argentina. Another packed issue that I heartily recommend to you all!
Yours sincerely, Simon planzer@planzer-law.com
Click on the links above to read back issues and our archive of gaming law articles visit www.IMGL.org/publications
IMGL Magazine is owned, published and distributed by: The International Masters of Gaming Law PO Box 27106, Las Vegas, NV 89126 USA The IMGL is a domestic non-profit corporation registered in Nevada, U.S. with registration number NV20121147120 Editor in Chief: Simon Planzer PhD, planzer@planzer-law.com Publication & Marketing Committee: Co-chairs , Stephanie Bell and Simon Planzer Members : Henrik Hoffmann, Kok-Keng Lau, Christine Masse, Peter Kulick, Anna Soilleux-Mills, Veronique dos Reis Head of Publications: Phil Savage phil@IMGL.org Design and production: SportBusiness Communications. Copyright: All rights reserved to IMGL. No part of this publication may be reproduced or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior permission from the publisher. The articles expressed in this publication do not necessarily reflect the views of IMGL but those of the authors. The publisher and editor do not accept any liability for the contents of the authors’ contributions.
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IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | JANUARY 2024
BRAZILIAN UPDATE
Brazil scores a winning goal with sports betting & igaming regulations AFTER NUMEROUS TWISTS AND TURNS, LATIN AMERICA’S MOST POPULOUS COUNTRY IS OPEN FOR LEGAL GAMING BUSINESS. NEIL MONTGOMERY REPORTS
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IMGL MAGAZINE | JANUARY 2024
BRAZILIAN UPDATE
A fter the Bolsonaro administration (2019-2022) failed to regulate Law No. 13,756/2018, which legalized fixed odds sports betting in Brazil1 as a form of lottery, the Lula administration, which took office on 1st January 2023, over twelve months, successfully managed to pass through Congress (albeit with several bumps on the way) the long-awaited regulations for the above-mentioned law. The regulations were enacted on 30th December 2023, as Law No. 14,790/2023. For a market that, in 2022, generated BRL120 billion 1 in bets 2 , the Federal Government was eager to issue such regulations within 2023 and secure vital additional revenues to fund its social programs and strive towards a zero fiscal deficit in 2024. This article provides a recap of the events of 2023 that culminated in this historic milestone in Brazil’s gaming and betting legal framework. For more than eight decades games of chance have been outlawed. Now, we review the main elements of Law No. 14,790/2023 and indicate what to expect in 2024. 2023 in a nutshell In January 2023, the Ministry of Finance, headed by Minister Fernando Haddad, invited São Paulo-based sports lawyer José Francisco Manssur to become Special Advisor to its Executive Secretary and to spearhead the drafting of the regulations for Law No. 13,756/2018. Manssur would have a colossal task in front of him: to interact with all public and private stakeholders for the regulations to be issued as soon as possible, since time was of the essence. His profile proved to be the right fit for the job. Regarded as a skillful lawyer and one who gets the job done, his experience working with government and having co- authored the text of Law No. 14,193/2021 (the Law of Football Corporations – S.A.F), provided the necessary credentials for the job. After several months of interactions with the industry and Congress (including in relation to the format to be adopted for the regulations), the Federal Government decided to put forward, in July, two pieces of legislation, namely: 1. Provisional Measure No. 1,182/2023, which became effective as from the date of its publication in the Official Gazette (25th July) and provided a robust framework for the regulation of fixed odds sports betting; and
2. Bill of Law No. 3,626/2023, which also proposed to amend Law No. 13,756/2018, insofar as fixed odds sports betting was concerned and to amend the legislation governing commercial promotions/sweepstakes (dating from 1971). Since Congress viewed that it had to play a central role in the making of the legal framework, it decided to let Provisional Measure No. 1,182/2023 ultimately forfeit (on 21st November) and to focus on the processing of Bill of Law No. 3,626/2023, which was reformulated to include much of the contents of the Provisional Measure. Bill of Law No. 3,626/2023 was approved by the Chamber of Deputies in September, which, pro-actively, included igaming in the legal framework (until then it had focused only on fixed odds sports betting). Such approval came while a Congressional Investigation (CPI) was underway into match-fixing in Brazilian football and which was interfering with the passage of the bill of law. Later, in October, while Bill of Law No. 3,626/2023 was being reviewed by the Senate, the Ministry of Finance issued Normative Ordinance No. 1,330/2023, establishing general conditions for the operation of fixed odds sports betting in Brazil. It also invited future applicants for a federal license to submit their expressions of interest, with certain basic information and documentation, on the promise that operators filing the same will be granted priority in the review of their applications once the federal licensing process commences. 134 expressions of interest were received. In December 2023, the Ministry of Finance reached out to such interested operators confirming an “alignment” video conference for 10th January 2024 to kick-off a testing phase of the systems the Ministry had developed. On 12th December, following fierce opposition by the so- called Evangelical Bench, which traditionally has opposed the legalization of games of chance in Brazil, the Senate approved Bill of Law No. 3,626/2023 excluding igaming and prohibiting the exploitation of online bets in video terminals at physical establishments. The Senate also included the requirement for future operators (which will have to be incorporated in Brazil and have their registered offices in country) to have at least 20 percent of their share capital held by Brazilians. Due to the Senate having changed the original text approved by the Chamber of Deputies, the Bill of Law had to return to the
1 Currently equivalent to approximately US$24 billion, taking into account a forex rate of USD1.00 = BRL5.00 2 According to a recent study produced by Instituto Brasileiro Jogo Legal – IJL and the BNLData portal
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IMGL MAGAZINE | JANUARY 2024
BRAZILIAN UPDATE
Chamber of Deputies for deliberation, prior to being forwarded to President Lula for sanctioning. On 21st December, Bill of Law No, 3,626/2023 was approved by the Chamber of Deputies with igaming being re-included, marking defeat for the Evangelical Bench (which, up to the last minute, tried to push the vote into 2024). Following the Christmas break, the approved consolidated text was sent to President Lula, who sanctioned the same with some vetoes that had been requested by the Ministry of Finance and will be further reviewed in this article. The bill of law became Law No. 14,790/2023 and was published in an extraordinary issue of the Official Gazette on 30th December. It is expected that this new federal law will be further regulated by a series of administrative ordinances (known in Portuguese as portarias ), to be issued by the Ministry of Finance. It is important to remember, however, that the legal framework for games of chance will only be complete when Bill of Law No. 442/1991, approved by the Chamber of Deputies in February 2022 and renumbered Bill of Law No. 2,234/2022 after reaching the Senate, which seeks to legalize land-based casinos and bingo parlors, as well as jogo do bicho, is enacted as a federal law. It was to be voted on by the Senate on 20th December 2023, but the session was cancelled, pushing the vote into 2024. The enactment of Law No. 14,790/2023 will certainly serve as a catalyst for moving this process forward after the Congressional Recess ends on 1st February 2024.
virtual bets on games in relation to which the result is unknown at the time the bet is placed and is determined by the outcome of a future aleatory event, using a random generator of numbers, symbols, figures or objects defined in the rules system. Besides fixed odds sports betting (the new law confirming that in-play bets are permitted), which have grown exponentially in Brazil since 2018, with the enactment of Law No. 13,756/2018, practically any online game in which the bettor knows what the return on the bet will be at the time it is placed will be considered to be lawful given that the definition provided for online gaming is quite broad. The Ministry of Finance will have to further regulate which online games fall within the above- mentioned scope. 2. Licensing While the details of the licensing process are to be laid down by a portaria , the law confirms that licenses will be provided on a discretionary basis, under an open licensing model (where there is no limitation on the number of licenses that can be issued), for a five-year term and valid nationwide. Applicants must be companies incorporated under Brazilian law and having their registered offices in Brazil. The requirement for having a minimum Brazilian share capital ownership of 20 percent was, unfortunately and unjustifiably, maintained, thereby constituting a potential market entry barrier to foreign operators. The law, however, is not precise as to what “Brazilian” entails, whether indeed it is a Brazilian national (individual) or a Brazilian corporate entity (i.e. one incorporated under Brazilian law and having its registered offices in Brazil). If the latter is acceptable, foreign operators (which continue to represent the majority accessing the Brazilian market) may have to add another corporate layer to their local corporate structures by first incorporating a local holding company to own the equity – or at least 20 percent of the same – in the local company applying for the license. If the latter is not the case, then, besides establishing a joint venture with a local, it may be possible to implement other legal structures to accommodate this legal requirement (such as, for example, splitting the share capital into voting and non-voting capital, with the Brazilian holding the latter). The law also determines that the controlling shareholder cannot, directly or indirectly, be a shareholder in a SAF (football corporation) or professional sporting organization, or form part
Law No. 14,790/23: Main aspects 1. Scope
The law provides the general conditions for the exploitation of the fixed odds lottery within Brazilian territory where bets can be placed by individual bettors above the age of 18 (there being certain impediments applied to bettors) on: i. Actual sports-themed events that cannot exclusively involve minors, in which the outcome of the same is unknown at the time the bet is placed and which are conducted in accordance with the rules established by the national sporting organization under the Brazilian General Sports Law, or affiliated entities, or by sports administration organizations headquartered overseas; and ii. Virtual online gaming events, where online gaming is defined as the electronic channel making available
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IMGL MAGAZINE | JANUARY 2024
of the management of a Brazilian sporting team. The license fee to be set by the Ministry of Finance cannot exceed BRL30 million (payable within 30 days of the Ministry of Finance concluding its review of the application) and will cover up to three brands promoted by each operator. The license is also to be granted to a specific operator and may be reviewed upon the same undergoing a corporate transaction. It will also have to specify whether the operator is authorized to offer the fixed odds lottery in virtual or physical channels (or both). If at least the 134 operators who filed their expression of interest under the auspices of Normative Ordinance No. 1,330/2023 do indeed file applications for a federal license when available, this will generate more than BRL4 billion 3 in license fees for the Federal Government. It is important to note that the law confirmed that while certain of its tax-related provisions are also applicable to fantasy sports, the exploitation of this (skill) gaming vertical (which for the first time in Brazil was adequately defined by law) would remain otherwise unregulated and not require a license (and may distribute cash prizes). 3. Advertising, bet integrity and player protection One of the benefits of a regulated market is the introduction of adequate advertising, bet integrity and player protection requirements. These have been incorporated into the new law, at least generally, to be further regulated in the Ministry of Finance’s portarias .
Once federal licenses have been made available, only licensed operators will be permitted to continue to advertise nationwide. Advertisements should include notices discouraging gaming and warnings about health problems triggered by the same, besides observing applicable restrictions regarding times and marketing channels with a view to only targeting adults. The law also encourages autoregulation, which is why the industry has been in close contact with CONAR – the Brazilian non-governmental organization that self-regulates the advertising sector and which started 2024 by publishing its Bet Advertising Rules 4 and what a responsible gaming advertisement should look like. The law also provides authority to the Ministry of Finance to notify companies – including Internet Service Providers (ISPs) – publicizing advertisements which violate the provisions of the law that they should be excluded. Judicial intervention will be required if such companies fail to exclude such unlawful advertising, which can include the blocking of websites as has been seen in 2023. Operators will also have to implement bet security and integrity mechanisms and observe the Brazilian Data Protection Law (LGPD). In line with the findings of the above-mentioned match fixing CPI, the law also determines that operators will have to adopt match-fixing mitigation mechanisms, in addition to participating in a Brazilian or international sports integrity organization. In addition to expressly referring to the application of the Brazilian Consumer Protection Code (in effect since the 1990s
3 Equivalent to approximately USD800 million when considering a forex rate of USD1.00 = BRL5.00 4 www.conar.org.br/pdf/conar-regras-apostas-folder-web.pdf
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IMGL MAGAZINE | JANUARY 2024
BRAZILIAN UPDATE
and known to be one of strictest in Latin America) to this new regulated market, the law set outs certain basic bettor rights, which do not include the “right-to-play”, which has caused havoc in many other countries. As required in other Brazilian regulated markets, licensed operators will have to operate a free-to-use customer assistance service, in Portuguese, and register on the Federal Government’s online complaint platform www.consumidor.gov.br.
b. For operators Law No. 14,790/2023 establishes that on the proceeds of the collection of bets after the deduction of the payment of bettor winnings and applicable IRPF, 88 percent will be applied to cover the operator´s costs and maintenance expenses. In this regard, the balance of 12 percent is to be applied over GGR. The result will be allocated and extended to certain specific public sectors and entities including education, health, sports, public safety and social security. In addition to the GGR tax, it is important to consider that Brazilian companies are subject to corporate taxation calculated according to the tax regime elected, which must consider the total expected annual turnover (annual turnover less than BRL78 million to be eligible the presumed profit regime or turnover equal to or above BRL78 million triggering the adoption of the actual profit regime). Accordingly, subject to certain restrictions (i.e. where gross income does not exceed BRL78 million and depending on the activity), Brazilian companies have the option to calculate corporate income taxes (“IRPJ/CSLL”) using a presumed profit regime (i.e. PPM - Lucro Presumido). Under the PPM, income is calculated on a quarterly basis on an amount of gross revenue (based on the entity’s activities) and adjusted as determined by the prevailing legislation. If the operator’s estimated turnover is expected to exceed BR78 million per year, it will be obliged to adopt the actual profit tax regime. In this regard, Brazilian corporate entities with an annual turnover of BRL78 million or more are subject to the following rates applicable to such actual profit regime. i. Corporate Income Tax (IRPJ) on their worldwide income annually. The basic rate is 15 percent accrued by a surtax of 10 percent on annual taxable profits exceeding BRL240,000.00. ii. Social Contribution on Net Profits (CSLL) is levied at a general rate of nine percent annually. The tax basis for IRPJ and CSLL are basically the same. Therefore, the total effective corporate tax rate is 34 percent (25 percent IRPJ [including the 10 percent surtax] plus nine percent CSLL).
4. Taxation
One of the hottest topics since the enactment of Law No. 13,756/2018 has been taxation, both for operators and bettors. While the 2018 law was amended in 2021, Law No. 14,790/2023 now finalizes the discussion in relation to the GGR 5 tax rate payable by operators, although companies in Brazil are also subject to other taxes and contributions, which increase the effective tax burden. There may, however, still be discussion in relation to the tax bettors are to pay, since President Lula, as requested by the Ministry of Finance, vetoed the first three paragraphs of article 31 of the same which addressed the topic. This veto, in addition to three others, can be reviewed by Congress within 30 days after the recess ends.
a. For bettors
The caption of article 31, which was not vetoed, establishes that net winnings are subject to personal income tax (IRPF) at the rate of 15 percent (this is half the rate paid in respect of other forms of lottery). The veto excluded the definition of “net winnings”, which was the net value of the positive result obtained from bets placed each year, after deducting losses incurred from bets of the same nature in the same period. It also excluded the IRPF exemption threshold of BRL2,112.00 per month (amounting to BRL25,344.00 per year) and the methodology under which bettors would calculate and pay IRPF (only once a year) 6 . While the veto may be overturned by Congress in 2024, there would be legal arguments to sustain bettors may still benefit from the exemption threshold, although the time period for calculating and paying IRPF over net winnings would still need to be defined, probably by a portaria .
5 Gross Gaming Revenue 6 The vetoed paragraph established that the bettor would have to calculate the taxable amount annually in his/her annual tax return by the last working day of the month following the annual date on which taxable net winnings are ascertained
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IMGL MAGAZINE | JANUARY 2024
BRAZILIAN UPDATE
iii.Social assistance contribution (COFINS), which is a monthly federal social assistance contribution calculated as a percentage of revenue, is levied at the rate of 7.6 percent. iv. Contribution to the Social Integration Program (PIS), which is also a federal social contribution calculated monthly as a percentage of revenue, is levied at the rate of 1.65 percent. v. Municipal Service Tax (ISS - once in force 7 ), monthly. The rates for this tax vary from one municipality to another and range between 2 percent and 5 percent. Law No. 14,790/2023 maintains the Inspection Fee instituted by Law No. 13,756/2018. Therefore, operators will be subject to the monthly payment of the Inspection Fee ranging from BRL54,419.56 to BRL1,944,000.00, depending on monthly payout of winnings. It is also important to note that a tax reform has begun following the enactment of Constitutional Amendment No. 132, of 20th December 2023 (starting with changes to taxes levied in relation to the provision of goods and services), to be implemented as from 2026 with supplementary legislation being required. 5. Other points of interest Law No. 14,790/2023 also addresses many other topics, which could each be the subject of an article. These can be summarized as follows: i. The Ministry of Finance will grant six months for companies to adapt to the new legal framework; ii. Advertising in sporting events involving minors will be prohibited; iii. Payment service providers (PSPs) must be duly licensed by the Brazilian Central Bank and will be prohibited from conducting financial transactions for non-licensed operators;
iv. Bets placed under match fixing schemes will be annulled; v. Operators will have to adopt facial recognition technology for player identification verification purposes; vi. Corporate groups with operators holding a federal license can only hold one state license; vii. Bonuses and other benefits extended to players are prohibited; viii. The law provides a list of infractions and applicable penalties. What to expect in 2024 2024 will certainly be a busy year for all stakeholders in the newly regulated market. The Ministry of Finance will start the year progressing the testing phase of the systems it has already developed with the group of 134 operators. It will also issue the portarias required to further regulate Law No. 14,790/2023 so that the market can become operational in the second half of 2024. At Congress, in addition to the review of President Lula’s vetoes, there is a good chance that Bill of Law No. 2,234/2022 will be approved thereby legalizing land-based casinos and bingo parlors, as well as jogo do bicho, thereby completing the regulatory cycle for Brazil. The landing of foreign operators in Brazil should provide corporate lawyers with a lot of work, not only in the form of incorporating local entities to apply for the federal licenses, but also more complex transactions such as joint ventures and M&A. The local presence established by foreign operators will likely encourage disgruntled customers to take legal action against them in Brazilian courts, creating a first wave of consumer litigation. This is the moment everyone has been waiting for. It is now time to kick-off a strong, regulated market and, hopefully, score some goals.
NEIL MONTGOMERY Founding and Managing Partner at Montgomery For information contact +55 11 4096-4008 neil.montgomery@ montgomery.adv.br
7 Although municipalities have already instituted ISS in their territories, a change in Supplementary Law No. 116/03 will still be necessary for this tax to be effectively payable by operators
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IMGL MAGAZINE | JANUARY 2024
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IMGL MAGAZINE | JANUARY 2024
PLAY-TO-EARN GAMES
France opens a market for games based on monetizable digital assets 2024 COULD SEE FRANCE TAKE THE LEAD IN REGULATING PLAY-TO-EARN GAMES BASED ON JONUM AS BENJAMIN GREZE AND ANNABELLE RICHARD REPORT
I n recent years, many countries have seen a significant increase in the offer of games based on Web3 technologies and the development of play-to-earn business models. According to a report from the French Senate, “the French National Gaming Authority (ANJ) estimates that between 1,200 and 2,500 Play to Earn games are in the development phase, with twelve billion dollars invested in these technologies in 2022. In the French sector, the ANJ lists fifteen games of this type developed or under development in 2022”. 1 Based on these observations, France is about to launch a three-year experiment modifying the current gaming regulatory framework to specifically authorize games based
on monetizable digital objects known in French as JONUM 2 . It represents a relaxation of the existing gambling and online gambling regimes, aimed at incentivizing investments in NFT- based games and business models, with the objective that France remains a leading country in this type of entertainment. On July 5, 2023, the French Senate adopted the draft law to secure and regulate the digital space, including its article 15, dedicated to ensuring the development of the monetizable digital game object economy in France 3 . The French National Assembly made several amendments to the text and then adopted this draft law at first reading on October 17, 2023 4 . A Joint Committee will be set up shortly to reconcile the
1 Report No 777 (2022-2023) of the French Senate on the draft law to secure and regulate the digital space of June 2, 2023, filed on June 27, 2023, Projet de loi visant à sécuriser et réguler l’espace numérique - Sénat (senat.fr). 2 In French, JONUM stands for Jeux à Objets NUmeriques Monetisables. 3 Text No 156 (2022-2023) adopted by French Senate on July 5, 2023, Sécuriser et réguler l’espace numérique (senat.fr) 4 Draft law No 175, as modified, by French National Assembly, October 17, 2023, Projet de loi n°175 - 16e législature - Assemblée nationale (assem- blee-nationale.fr).
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IMGL MAGAZINE | JANUARY 2024
PLAY-TO-EARN GAMES
draft law to secure and regulate the digital space proposed by the Senate on July 5, 2023, with the draft regulation of the National Assembly of October 17, 2023, which are not quite the same. The Joint Committee will advance discussions, probably from January 2024, and the draft law may thus still evolve accordingly. However, it remains quite unlikely that the Joint Committee will significantly modify the provisions dedicated to the games based on monetizable digital objects. In the absence of a European framework for these new types of games, France, in early 2024, may well become the first country in the world to regulate this ecosystem. Background This draft law was initially led by the French government. It intends to fill a legal vacuum but also to support thriving French start-ups such as Sorare – which raised US$680 million in 2021 and is valued at US$4.3 billion. The draft law has even been informally called the “Sorare law”. In play-to-earn games, players can purchase digital objects to participate and progress in the game. A core feature of these games is the possibility for the player to resell these objects to third parties, either on the game publisher’s platform or on a secondary marketplace. JONUM fall within the definition of video games under the meaning of French law. Video games are defined as “any leisure software made available to the public on a physical medium or online, incorporating elements of artistic and technological creation, offering one or more users a series of interactions based on a storyline or simulated situations, in the form of animated images, with or without sound”. 5 The motivations of JONUM players may generally differ from what motivates gamblers. The JONUM operators’ business model is also perhaps distinct from that of gambling operators. Yet, the current legal regime does not take these circumstances into account, and the legal characterization of JONUM poses a regulatory challenge under French law from a gambling perspective.
Article L. 320-1 of the French Homeland Security Code prohibits gambling as long as the following four conditions are met: (i) an offer is made to the public, (ii) a financial sacrifice is made by the player; (iii) a gain of any kind is hoped for by the player; and (iv) a dynamic of chance is involved, however slight. Gambling as defined above is prohibited unless it is included in the list of exceptions to the prohibition set out in article L. 320- 6 of the French Homeland Security Code. It should be noted that the intervention of chance is not a decisive criterion under French law anymore. The hope of a gain does not have a specific legal definition. Therefore, it could be considered that a digital token, which is tradeable and which has a monetary value, is a gain. JONUM are thus at the edge of the French online gambling regulation. Under French law, violation of the gambling prohibition is an imprisonable offence and subject to heavy fines. 6 The online gambling market is open to competition in France. However, the games allowed under the online gambling regulatory framework are limited to poker, sports betting and horse racing bets. Therefore, it is insufficient to cover all digital token-based games. Consequently, the French government considered that the creation of a dedicated regulatory framework was necessary. Such a dedicated framework would offer legal certainty to operators and the legal barrier for investors will thus be removed. According to a Senate report, these games presented the same kind of risks as those associated with gambling and, to a lesser extent, video games. 7 Therefore, following the French government initiative, the parliament acknowledged that JONUM should be authorized by law and supervised by the ANJ. The authorization of games based on monetizable digital objects As of October 17, 2023, article 15 of the draft law authorizes JONUM: On an experimental basis and for a period of three years from the enactment of this law, games offered via an online
5 Article 220 terdecies, II, of the French General Tax Code 6 Article L324-1 of the French Homeland Security Code 7 Report No 777 (2022-2023) of the French Senate on the draft law to secure and regulate the digital space of June 2, 2023, filed on June 27, 2023, Projet de loi visant à sécuriser et réguler l’espace numérique - Sénat (senat.fr)
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PLAY-TO-EARN GAMES
public communication service that enable, based on a mechanism that relies on chance, adult players who have made a financial sacrifice to obtain monetizable digital objects, to the exclusion of any gain in a tradeable currency, shall be authorized provided that these objects cannot be transferred whether directly or indirectly through the intermediary of any natural or legal person for financial reward either to the gaming company that issued them, or to a natural or legal person acting in concert with it. This article further provides that: Monetizable digital objects within the meaning of the first sentence of this II are game elements that confer on players alone one or more rights associated with the game, and which may be transferred, directly or indirectly, to third parties for financial reward. The games allowed will be determined by governmental decree after a non-binding opinion of the ANJ. According to the initial project prepared by the French government in June 2023, the games allowed could be: … games falling into one or more of the following categories, in which monetizable digital objects constitute game elements [such as game characters, advantages for participating or progressing in the game, or any other element usable in the game]: • fighting games based on simulated combat situations, which offer one or more users interactions with other players or game characters; • breeding games, which allow users to develop animals or imaginary creatures; • sports and horse-riding fantasy games, which offer users interactions based on real competitions, sports events or horse-riding trials; • adventure and quest games, which offer users a series of interactions based on a storyline or simulated situations. This list is now out of date and still under discussion. It is thus likely to change. It is noteworthy to point out that by focusing on the themes of the games rather than on their mechanics, the regulation is creating an opportunity for many operators offering games of
chance, casino related or other, that are ready to make some adaptations to match these themes. As this draft law is a three-year experiment, the government, with the contribution of ANJ, is committed to providing a mid- term review, that is to say 18 months after the enactment of this law. The ad hoc legal framework One of the major derogations created by this draft regulation, compared to the existing online gambling regulatory framework, is that JONUM operators will not need to obtain a license or an agreement prior to launching their activities. They will need only to notify the ANJ of their existence and the launch of their activities. 8 Article 15 bis of this draft regulation sets out a comprehensive regulatory framework for the three-year experimentation period. This article specifies the obligations of JONUM operators and the supervisory and sanctioning powers of the ANJ over JONUM operators. The regulatory framework provides in particular for: • specific obligations to prevent minors from playing games for financial reward. In this respect, JONUM operators shall implement an identity and age verification process before a player can withdraw their winnings; • obligations to prevent the risk of gaming addiction, notably by implementing self-exclusion and self- limitation mechanisms for spending and playing time. Furthermore, JONUM operators shall inform players of the health risks associated with gaming via a warning message; • obligations to combat money laundering and the financing of terrorism, with a compliance period for JONUM operators since these obligations will only apply 18 months after the enactment of the law; • specific provisions regarding advertising practices. JONUM operators will have to refrain from sending any commercial communication to minors and account holders benefiting from a self-exclusion measure applicable to the games operated. In addition, the restrictive provisions of the French Homeland
8 Article 15 bis, I, of the draft law No 175, as modified, by French National Assembly, October 17, 2023
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PLAY-TO-EARN GAMES
Security Code in this area will apply to their commercial communications, in a comparable manner as to the applicable rules for online gambling; • specific provisions regarding sports and horse-riding fantasy games. For instance, operating a sport fantasy game may require an agreement from the organizer of the sporting competition or event; • enhanced supervisory powers for the ANJ over JONUM operators. The ANJ will be able to monitor JONUM operators’ compliance with their obligations, particularly in relation to the fight against illegal gambling, and to impose any appropriate sanctions in the event of a breach of these obligations. These sanctions may range from a mere warning to a ban, for a maximum of three years, on an operator conducting JONUM activities. A number of sanctions applicable to gambling operators are also applicable to JONUM operators. Once adopted by the French Parliament, the regulatory framework of the Web 3.0 gaming sector will still need to be supplemented, which will take some time. Subject to the discussions at the Joint Committee, governmental decrees should be enacted to: • specify the information that games with monetizable digital objects operators must notify to the authorities prior to launch; • specify the list of authorised game themes; • specify the characteristics of the rewards that can be offered including a potential rewards cap; •
• specify the list of data used to search for and identify any act committed by a player likely to constitute fraud, money laundering or terrorist financing, as well as the procedures for checks carried out by the National Gaming Authority; and • frame the prevention of excessive or pathological gambling behaviour, in particular through the introduction of self- exclusion mechanisms and self-limitation mechanisms for spending and playing time. No decision has been announced yet on the sensitive point of taxation for this new legal regime. The government’s initial message was one of fair taxation that would foster innovation. One can reasonably expect that taxation for JONUM would therefore not be as important as taxation for gambling and games of chance, which are considered by the public institutions as highly profitable activities overall. 9 The legal framework detailed here is already much more complex and burdensome than what was initially designed by the French government. However, it remains theoretically lighter than the legal regime for online and land-based gambling. Obviously, the way ANJ will choose to regulate these new activities will be key in ensuring this sector thrives in France and does foster further developments of unicorns. Lastly, let’s not forget it is, at this point, an experiment and that the situation will need to be reassessed first 18 months after its launch, and then before the end of the three-year period. Nevertheless, we should rejoice at the first significant loosening of French gambling regulation since 2010 and hope it is a step in the direction of other regulatory changes such as the opening of online casinos. We look forward to exploring the opportunities created by this new development.
ANNABELLE RICHARD Partner, Pinsent Masons France LLP For information contact ++33 153530223
Annabelle.Richard@ pinsentmasons.com
specify the procedures for opening, managing and closing player accounts by the gaming company, notably to warrant that minors cannot access the games; 9 See French Cour des Comptes Report on gaming and gambling, September 21, 2023, Les jeux d’argent et de hasard : un secteur en mutation, des enjeux de régulation | Cour des comptes (ccomptes.fr).
BENJAMIN GREZE Associate, Pinsent Masons France LLP
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SBC | EVENTS 2024
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BETTING AND iGAMING SHOW 24-26 Sept, Lisbon, Portugal SBC SUMMIT LATINOAMERICA 29-21 October, Miami, USA
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IMGL MAGAZINE | JANUARY 2024
ARTIFICIAL INTELLIGENCE
Artificial Intelligence in the gaming industry WIDELY VIEWED TO HAVE IMPORTANT APPLICATIONS IN GAMING, A.I. STILL ENGENDERS FEAR AND DOUBT IN BUSINESS AND CONSUMERS ALIKE. THESE CONCERNS MAY BE WELL FOUNDED BUT ARE NOT INSURMOUNTABLE, SAYS IAN HUGHES
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ARTIFICIAL INTELLIGENCE
A rtificial Intelligence (AI) is a broad discipline and is of understandable concern to many. Much of AI is either misunderstood or not understood at all and, as humans, we have a fear for the unknown. One element of AI that is attracting a lot of attention is Generative AI i.e. technology which can apparently produce its own content. Examples include applications such as ChatGPT which has the ability to create text content and other technologies which can output unique image and/or video content such as deepfakes. Whilst there is a fear of the unknown, it is hoped that, with greater understanding of how AI can work, we will embrace it for its benefits, understanding its limitations and risks. In this article we will explore some of the more practical applications for AI that are well positioned for use in the regulated gaming industry and which have similar characteristics to those used from other regulated industries such as Banking and Medicine. Machine Learning is a part of AI and, on the surface, the name alone can instill fear and pose many questions. How does a machine learn? Can we understand how it makes its choices? Interrogating how a decision is made and the factors driving such a decision can be as important and sometimes more important than the decision itself. It is a common misconception that the use of AI will remove the human element and our ability to understand how and why decisions are made. A computer, they say, is making human-like decisions but without human insight or discretion. Whilst this can certainly be true it does not have to be the case. For Machine Learning to occur we need three essential ingredients: good data, algorithms – the set of instructions given to the machine – and computing power. Applications in the Gaming Industry would therefore appear to stand a good chance of success as the industry has good quality data which can be exploited by Machine Learning for a number of noble objectives. This data is, however, extremely sensitive and proprietary to operators who are understandably reluctant or unable to share due to commercial and privacy regulatory concerns. A dichotomy exists between the principle of data minimization for privacy and cybersecurity concerns and the feature rich data required for effective training of AI models. As we will go on to see, AI has the potential to do a great deal of heavy lifting in areas such as Prediction and Classification. We will discuss both in this article, but let’s first think about the notion of AI being a ‘black box’. Many worry that the
inner workings of AI, particularly when it comes to making predictions or classifications, are done without recourse to human judgement or that, over time, the machines will become smarter than our ability to interrogate them. Whilst there may be some truth to this, it is important to recognize that such opacity is not an inherent requirement of AI systems. It is more helpful to think about AI as a vast range of tools and methodologies, in some cases using fundamental probability and statistics going back to the 1700’s, which are implemented in software to allow incredibly fast and numerous computations. As creators of AI, we are capable of designing and deploying highly interpretable systems that facilitate easy comprehension and provide significant insights into data and the decision-making process. However, this level of clarity and transparency is not something that happens by default. It must be intentionally integrated as a critical requirement from the outset of the development process. Clearly defining the desired outcome No practical deployment of AI can deliver useable results without a clear definition of the problem to be solved and desired outcome. This is especially important if the model is required to have high interpretability and transparency. In regulated industries it is expected that we should understand how and why decisions are being made and that this be aligned to policy. This is perfectly possible in an AI-powered system, however it should be addressed early on in the design stage. This will lead to different choices as to the algorithms and methodologies to be used and, in some cases, a sacrifice in efficiency and accuracy may result. One factor that is often overlooked is how the model will be tested and the range of scores that are deemed to be acceptable. Data is split into two elements: training data – anonymized data used to educate the AI as to the range and nature of behaviors given certain situations or stimuli – and testing data which is the AI operating in practice. Generally speaking 70 percent to 80 percent of data is used for training with the remainder used for testing. The science behind splitting the data can have significant impact on the final design and performance of the AI model. Models may perform Prediction or Categorization and the learning may be supervised or unsupervised. This will depend on what it is we are seeking to achieve and what data we have
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