Money laundering in football - lessons for the sports industry
Published 21 December 2011 By: Kevin Carpenter
Money laundering in football is not a new phenomenon but the poor financial health of world football overall has lead to increased scrutiny in recent years by leading organisations such as Transparency International ('TI') (the world’s leading non-governmental anti-corruption organisation) and the Financial Action Task Force (‘FATF’) (an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering and terrorist financing).
Indeed TI has suggested that, ”Vulnerabilities in the sector's financing and due diligence practices, culture and structure are seen…as creating an environment conducive to money laundering by organised crime.“ The concerns have been compounded by two recent high profile cases in the UK then this makes it a good time to analyse this ever present threat.
What is money laundering and why is football a target?
Money laundering is the process by which proceeds of crime (so called "dirty money" or “criminal property”) are changed so that the proceeds appear to have come from a legitimate source. The proceeds of crime is money, or other assets, that have been acquired or generated through criminal activities in the UK or abroad. There are three main areas of vulnerability in the football sector which can be identified:
- The sector’s structure – market is easy to penetrate due to low barriers to entry; the sector is complex and characterised by opaque networks of stakeholders and interdependence between the different actors; management lacks professionalism; diversity of legal structures;
- The sector’s finances – sector deals with large cash flows and large financial interests; irrational character of the sums involved and unpredictability over future results; many football clubs and organisations are in financial dire straits; and
- The sector’s culture – social vulnerability of players; the societal role of football whereby people are reluctant to shatter sports’ illusion of innocence therefore illegal activities are not reported; the attractiveness of non-material rewards to criminals (i.e. status).
Recent examples of money laundering in football
One of the lesser known aspects of the recent spot fixing scandal players in the Pakistan cricket team is that Mazah Majeed, the ringleader agent who offered the money to the players to spot fix, has been quoted as saying the “only reason” he bought non-league semi-professional football club Croydon Athletic in 2008 (becoming the owner) was to launder money made from match fixing. Investigations are continuing into the clubs finances and their financial health, which is a real and continuing concern. The stresses of this situation were tragically illustrated when then Chairman of the club David Le Cluse, who claimed to know nothing about the money laundering, took his own life this past October.
The second example came to light at the end of November when Portsmouth FC’s ultimate owner Russian Vladimir Antonov was arrested by UK police under an extradition warrant over a money laundering investigation in connection with the nationalisation of Snoras Bank in Lithuania. Mr Antonov owns a controlling stake in the bank which had to be nationalised after regulators discovered a huge asset shortfall owing to alleged fraudulent activity. Fans and other stakeholders have been assured “that it remains business as usual” but only time will tell.
The UK money laundering legislative regime
The two chief pieces of legislation in the UK governing money laundering are the Proceeds of Crime Act 2002 (‘POCA’) and the Money Laundering Regulations 2007 (‘the Regulations). POCA is wide in scope applying to all UK business and citizens (including football clubs and their employees). The offences are criminal and include up to 14 years imprisonment and heavy fines. POCA focuses on dealing with “criminal property” with the principal offences also covering a wide range of conduct:
- Acquiring or using or possessing criminal property;
- Concealing, disguising, converting, transferring or removing criminal property; and
- Entering into or becoming concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person.
The Regulations apply to organisations that accept deposits, deal in investments and deal in goods whenever a transaction involves accepting total payments of €15,000 or more. This covers a number of clubs and other football entities. The Regulations impose burdensome requirements in relation to (but not exhaustively) record keeping, internal reporting and staff training. Criminal penalties for breach of the Regulations include two years imprisonment and fines.
Methods by which football is targeted for money laundering
The following transactions in the football sector increase the risk of money laundering:
- Ownership of football clubs (e.g. investments from third party investors, acquiring land or buildings);
- The ownership and transfer of players (including the role of agents);
- Betting activities (lack of regulation between countries for gambling and lack of transparency); and
- Image rights, sponsorship and advertising arrangements (also used for tax evasion).
Although these transactions pose money laundering risks in the football sector there are similar threats in other high risk sports namely cricket, rugby, horse racing, motor racing, ice hockey, basketball and volleyball.
Preventative measures to minimise the threat of money laundering
As highlighted above, all sports organisations must be aware and guard against dealing with the proceeds of crime. Organisations must constantly review the transactions they carry out with a suspicious eye. Furthermore, if they are covered by the Regulations they must carefully ensure that they comply with the requirements and seek professional legal advice in doing so where necessary.
As a minimal step sports organisations should review their existing procedures and systems regarding money laundering (if there are any at all) and, where appropriate, consider implementing:
- The appointment of a member of senior management to be responsible for money laundering issues;
- Awareness training for staff;
- Internal controls on who has the authority to bind the club in business transactions;
- Accurate record keeping;
- Thorough due diligence on who they are dealing with in business transactions;
- Reporting any suspicious activity; and
- Regular contact with their governing body (i.e. the Football Association).
These measures should be proportionate with the need to tailor them to the size and complexity of each individual organisation.
By Kevin Carpenter, Executive Contributor at LawinSport.com specialising in corruption in sport and is a member of the Bribery and Sanctions litigation team at SJ Berwin LLP. You can follow him on twitter @kevswfc55 and on LinkedIn.
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- Tags: Anti-Corruption | Financial Action Task Force | Football | Integrity | Money laundering | Transparency International | United Kingdom (UK)
Kevin is a advisor and member of the editorial board for LawInSport, having previously acted as editor. In his day-to-day work he has two roles: as the Principal for his own consultancy business Captivate Legal & Sports Solutions, and Special Counsel for Sports Integrity at leading global sports technology and data company Genius Sports.