Colombia makes public the draft of the new Online Gambling regulation (Demo)

Bogotá D.C. June 15, 2016

World Online Gambling Law Report

Authors: Carlos Buitrago- Luis Fernández

Department of Corporate Law – GHER & Asociados Abogados (www.gherasociados.com)

Bogotá- Colombia

contacto@gherasociados.com

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Colombia makes public the draft of the new Online Gambling regulation

In 1801 the City Council of the Colombian Capital organized a lottery that awarded the winner with a final prize of 1,000 pesos. At that time the Colombian Currency had a value similar to the US dollar. In that lottery, the City Council of the Capital received approximately 453 pesos. Since then, the State has always promoted laws to ensure that at least some of the revenues coming from gambling go to the National Treasury. For example, in 1923, the first law that regulated gambling gave the monopoly to exploit lotteries and to receive their revenues to municipalities.[1]

At the present time, Online Gambling is not regulated in a way that ensures that the State will receive its customary share. Therefore, last April 13, 2016, the Colombian agency in charge of gambling (COLJUEGOS) issued to the public the draft of a new administrative regulation on Online Gambling.

In this article we will explain the current regulations of Online Gambling, the new regulation proposed by COLJUEGOS and we will end expressing what are the challenges that Online Gambling regulation is facing in Colombia.

  1. Current development of Online Gambling regulations

Online Gambling is not properly regulated in Colombia. However, there are some laws that can be used as a reference regarding this issue:

A. The National Constitution

Article 336 of the National Constitution establishes that “Monopolies are forbidden, unless they are in favour of the State with a public and social interest purpose … Revenues obtained from gambling monopolies shall be exclusively applied to health services”.

This means that, according to the Constitution, only the State can exploit the gambling business. However, the law opens the door for the State to transmit this capacity to private individuals, as long the revenues received by the State are still used with a social end.

B. Law of Gambling

In 2001, the Colombian Congress passed Law 643 to regulate Gambling. The main regulations of this law are:

  • The State must only use the revenues obtained from gambling with a social purpose and for health services.
  • Private individuals who want to own a gambling business must sign a contract with the State or receive an authorization from the State.
  • The State will operate through a national agency, which at the time of the promulgation of the law was the Territorial Corporation for Health. However, this agency latter disappeared and was substituted by COLJUEGOS.
  • The definition of “novelty game” as “any game operated through the internet”.

Law 641 does not directly regulate Online Gambling. However, it is an important body of regulation, because it regulates gambling in general, which means that Online Gambling has to be in line with the regulations of this law.

C. The National Plan for Development

In 2015, the Colombian Congress approved the National Plan presented by the government to promote the development of the country. This Plan was approved by Law 1753. In this law, Congress also regulated some aspects that are important for Online Gambling. For instance, Article 93 of Law 1753 establishes that “ it is understood that a game operates through the Internet when both the bet and the prize and paid exclusively through the internet.”

Moreover, Law 1753 established that on a yearly basis private individuals or entities operating online games should pay 17% of their gross income along with a special tax of 559,147,194.00 Colombian Pesos (approximately £136,650.00).

Finally, article 93 of Law 1753 also foresees that private individuals will be only able to operate Online Gambling agencies if they have signed a contract with COLJUEGOS.

  1. New draft to regulate Online Gambling

Last April 13, 2016, COLJUEGOS published on its website the draft of a new regulation to control Online Gambling (Hereinafter the “Draft”).[2]

The main novelties of this Draft are:

A. It sets forth important definitions such as Operator,[3] Player,[4] or Online Games.[5] Operators are the private individuals that are authorized by the State to operate Online Gambling Games, Players are the individuals who willingly accept to place a bet online and Online Gambling Games are those games that do not require the presence of the Player to place the bet.

B. It obligates Operators to open a bank account with a bank in Colombia to place the money gambled by the Players.[6]

C. Operators will have to pay 15% of their net income along with a special tax of 559,147,194.00 Colombian Pesos (approximately £136,650.00).[7] This means that the Draft reduces the current obligation of paying 17% of the gross income to 15% of the net income. Additionally, Operators will have to pay 1% of their net income to COLJUEGOS as “administrative costs”.

D. Operators will have to hire an insurance policy to cover bets by Players. This policy has to ensure the payment of at least 615 million of Colombian Pesos (approximately £143,848.00).

E. Finally, Operators must meet with certain technical requirements, which will be established in a different regulation called “Technical requirements for Online Games in Colombia”.[8]

This Draft is Public. Therefore, everybody can access to it. The purpose is that all the interested people send their comments to COLJUEGOS. After COLJUEGOS gathers all the comments, they will issue a final Draft that will probably become an official Regulation that will have the strength of a Law. We expect this Regulation to be fully in force before the end of 2016.

  1. Challenges that the Online Gambling business is facing in Colombia

Online Gambling represent challenges for Operators, Players and the State.

A. Challenges for Operators

The main challenge that Online Gambling Operators have is to create and later consolidate the incorporation of a company capable to meet all the criteria imposed by the Colombian regulations.

The problem here is that the Colombian regulations are very difficult to meet. Just to incorporate an Online Gambling business Operators will need to have an amount of money that regular entrepreneurs do not have. Moreover, not even wealthy entrepreneurs will necessarily be able to incorporate Online Gambling companies. The fixed taxes that Online Gambling Operators have to pay require them to have a very strong financial muscle at the beginning of their operations.

We understand that Gambling is not a business that everybody can open. In order to operate an Online Gambling business, Operators must show their capacity to pay the Players bet. Otherwise, Gambling will become in an irresponsible way to take money away from Players without having the certainty of return.

However, in the Colombian case it seems that instead of regulating the game, Colombia is trying to deter gambling.

Now, having said that, Online Gambling is something that cannot be deterred or prevented. Online Gambling is a reality. In Colombia, as in many other countries around the world, citizens can access to international Online Gambling websites and place their bets freely.

With these regulations Colombia is allowing foreign Operators take over the Colombian market, excluding the Colombian entrepreneurs from the possibility of competing with foreign websites that do not have to comply with the restrictive Colombian regulations.

B. Challenges for Players

The main challenge that Players have is to trust Online Gambling. Traditionally, Players in Colombia are used to physically go to a booking office and place their bets in cash. The vast majority of the people that gamble in Colombia are people that neither have a bank account nor have access to the internet. Therefore, the main challenge they are facing is to trust in a system that they are not familiarized with.

We consider that the only way to build that trust that Players need to get into Online Gambling is by educational campaigns that will probably not occur because there will be no Colombian Online Gambling Operators interested in educating the people on the benefits that Online Gambling brings.

C. Challenges for the State

The Colombian State, through COLJUEGOS, is facing the challenge of implementing a practical regulation. COLJUEGOS does not want to create a regulation that, far from regulating, creates a parallel market of illegal Online Gambling.

COLJUEGOS has to create an environment where both the Player and the Operator feel that they can access a safe and legal Online Gambling world.

  1. Conclusion

We applaud the initiative that COLJUEGOS is taking in order to regulate Online Gambling. Taking proactive measures is important in this kind of cases. However, COLJUEGOS also has to take into account that if the regulation is not in accordance with the reality of gambling, the regulation will be neglected by those who are supposed to follow it. Therefore, we invite to COLJUEGOS to create a regulation that does not deter gambling rather than regulates it.

[1] http://www.loteriadebogota.com/index.php/en/nuestra-empresa/historia

[2] http://www.coljuegos.gov.co/documentos.php?id=200448

[3] Article 3 of the Draft.

[4] Idem.

[5] Article 11 of the Draft.

[6] Article 4 of the Draft.

[7] Article 5 of the Draft.

[8] Regulation available at http://www.coljuegos.gov.co/documentos.php?id=200448

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