The problem with establishing gambling regulation in Latin America

In an analysis for Yogonet, Carlos A. Fonseca Sarmiento, a lawyer specializing in the gaming sector in Peru and Latin America, reviews the issues involved in the creation of gaming law in Latin America, comparing different case studies and summarizing their fundamental axes. Here is the specialist's complete analysis:

I have had the opportunity to work in the elaboration of regulatory proposals for the regulation of different types of gambling games in Paraguay, Nicaragua, Bolivia, Argentina, Chile, the Dominican Republic, and, of course, in my country, Peru.

This has given me the opportunity to talk, debate, and support proposals with governments of all political orientations. And it has also allowed me to conclude that creating a gaming law in Latin America nearly always presents the same problems.

Now there is a special interest in several jurisdictions of the region to regulate remote gambling games.

The Law regulating the operation of remote gaming and remote sports betting in Peru (Law 31,557 of the Congress of the Republic), and the Online Gaming Regulations in the Province of Mendoza in Argentina (Board Resolution 554/2022 of the Provincial Institute of Gaming and Casino) have just been approved. Furthermore, by presidential initiative, the parliaments of Chile and Uruguay are discussing, on the one hand, a law to regulate the development of online gambling platforms (Chile) and, on the other hand, one that empowers the General Directorate of Casinos to directly operate online gaming, or to authorize this type of gaming to those who had previously obtained the concession or permit to operate it on-site (Uruguay).

There are two prominent characteristics of public policies regarding the gaming industry in Latin America. Two negative characteristics. First, between regulating and prohibiting, they generally choose to prohibit (this is the case for many gambling games, currently in Brazil, Ecuador and Venezuela, for example), or they simply choose a "watch and wait" policy.

Laws on gambling or on any matter associated with technology (fintech, e-sports, cryptocurrencies, etc.) generally arrive "late" in Latin America.

Regarding remote gambling games, it is worth remembering that through Resolution No. 538/99 dated December 9, 1999, the Institute of Social Assistance of the Government of the Province of Formosa (IAS) authorized the company Casinos del Norte S.A. to operate the authorized games through the National Public Bidding 002/94, by means of the online system via the Internet.

This was the first case of regulation in Latin America, and then it was necessary to wait for Resolution N°65 of October 25, 2002, of the Gaming Control Board of Panama, which approved the Regulation for the operation of games of chance and activities that originate bets through electronic communication gaming systems.

To this day, there are still many countries with a policy of "prohibit" or "watch and wait". The other characteristic is that it seems as if the judicial powers of our region were on a "war footing" against the gaming laws since each one of them comes with a lot of constitutional processes and many of them, is eventually upheld by the judges who resolve them and problems of unsuspected consequences are generated for this sector.

I would like to refer to the four recurring problems that occur in Latin America when a gaming law is drafted.

Unfortunately, it is repetitive, I have warned them recently about the last gaming regulations approved in the region, and this could happen again with the projects that are being discussed in Chile and Uruguay.

It is good to remember them in order to reflect on them. These problems are the ones that lead to having to go to the Courts, especially because they cause unreasonable limitations to the constitutional rights of employers, workers, and users. These problems are i) The absence of the proportionality test, ii) Paternalism, iii) Ignorance of the subject matter and iv) The error of self-sufficiency.

i) The problem of the absence of the proportionality test. The so-called "proportionality test" is a technique developed by the German jurist Robert Alexy to optimize the effectiveness of fundamental rights. It allows the evaluation of measures restricting constitutional rights, in order to determine whether they are rational and objectively legitimate.

This mechanism allows us to argue in a simple way whether the legislative measure was inadequate, unnecessary, and/or disproportionate. It is characterized by its three interconnected stages: first, the evaluation of the appropriateness of the restriction; second, the necessity of the restriction; and finally, the proportionality of the restriction with the intended purpose.

When gambling laws are drafted in Latin America, very few authorities pass through the proportionality test and end up passing "Frankenstein laws", justified by the other problems we are going to refer to paternalism, lack of knowledge of the subject matter, and self-sufficiency.

The Constitution is, by its very nature, a limitation of power. Legislators do not have an open letter to limit constitutional rights. There is an essential content of each fundamental right that no Parliament, no matter how legitimate it may be, can violate, even more so now that they are protected by human rights treaties. Unfortunately, if the test of proportionality is not applied, the expert eye of a constitutional judge will notice it, causing him to disapply approve norms due to their incompatibility with the Constitution.

ii) The problem of paternalism. A paternalistic authority is one that limits the individual freedom of people due to the concern, generally unjustified, of the ruler that he is in a better position than individuals to make decisions that originally correspond to them.

What a paternalistic authority seeks is to protect citizens from their own harm, which would occur if they had more freedom. Paternalism is based on the idea of people's inability to make the right decisions and on the belief that the state is best placed to make them.

Paternalism clashes with human dignity. Human beings are unique. Each person has a particular meaning and orientation in life and, around it, sets goals.

In other words, everyone has a unique life plan. The right to the free development of personality seeks to protect this very personal life plan.

It is the right to decide what to do and what not to do in order to realize the personal project that each person has in his or her life. Not all people are motivated or pleased by the same things. This right protects the right to get a tattoo, to smoke, to marry and divorce, and of course, to gamble, as well as any decision that arises from the most intimate conviction of each person and has as a limit the harm that its exercise could cause to others. When a gambling law unreasonably interferes with this right, it is likely that a judge will not allow it to be applied.

iii) The problem of ignorance. The regulation of gambling is not a simple matter. Internationality, dynamism and technological dependence are its defining elements. In countries such as Uruguay and Chile, for example, which now intend to regulate remote gambling, their criminal laws -very old- did not have the slightest idea of the possibility of offshore gambling.

Their criminal laws are not suitable to address the issue of remote gambling. The lack of preparation of legislators and their advisors permanently generates three types of problems of interpretation of laws: logical problems (e.g. contradiction between the purposes of the law and the content of the law), semantic problems (e.g. absence of precise definition of the games regulated by a law) and syntactic problems (e.g. problems in the connection of words in the structure of the sentence, when they prohibit operating near "schools and temples" instead of "schools or temples"). All are serious and all caused by the lack of knowledge of how to regulate. If there is no conceptual clarity on what is a gambling game, a gambling platform or on the difference between a game that is born and dies on the internet with respect to another where the internet only serves for the interaction between the user and the operator, it is very likely that legal uncertainty will be a permanent negative externality when regulating remote gambling games in a jurisdiction. Making a law requires research, comparative law review, data analysis and statistics. But all this almost never happens.

iv) The problem of self-sufficiency. The regulation of a complex economic activity requires the participation of the regulated parties. Those who know and suffer the day-to-day problems are precisely the actors involved in the industry and without their feedback it is impossible to make a law free of contingencies. Something so simple that the authorities recurrently forget. All people have cognitive biases and if the authorities do not have experience in gambling regulation, these biases will be more evident when regulating. Authorities are sometimes embarrassed to ask for help from the private sector because they might see it as a sign of their incapability.

But the truth is that the authorities will always have much less knowledge of the economic sector they are going to regulate compared to the economic agents that are in that sector and this should not bother them. The authorities are birds of passage that at a given moment were entrusted with regulating an activity, so they must act responsibly with this task and try to have all the necessary information to be able to offer a regulation that optimizes all the positive externalities it can generate: jobs, legal certainty for users, development of private initiative and public revenues.