Since ancient times, societies throughout the world have devoted considerable resources to sports, as well as offering praise to the exploits of sportsmen. What is new today is the surge of commercialization of sport, the unprecedented internationalization of the sports labour market, the considerable sums of money flowing in from broadcasters and sponsors, and massive cross-border investments by sponsors, including the sporting industry itself and sometimes “super rich” private investors.
The sporting industry contributes a considerable amount of money to the economy of many countries by boasting the Gross Domestic Product (GDP), especially when the country is hosting international sporting event. The 1994 US World Cup contributed additional 1.4% to the GDP. France recorded additional 1.3% when it hosted the World Cup in 1998. Also the GDP of Germany saw a rise of 1.7% when hosted the World Cup in 2006
Criminals are always trying their best to be a step ahead of authorities and prosecutors. They try to develop new ways of washing their dirty money and/or fueling the activities of terrorists. Based on a literature review and the results of the FATF-questionnaire, several sports can be identified as being vulnerable to money laundering. Sports that are regularly indicated as being vulnerable to criminal money are football, cricket, rugby, horse racing, motor racing, car racing, ice hockey, basketball and volleyball. This vulnerability in the industry has made authorities to focus their attention and resources to fight the washing of ill-gotten fund by criminals.
Unlike other businesses, it is not always the profitability as such that makes sport attractive to criminals. The connections that criminals seek to make with sport are not only motivated by the desire to gain money but social prestige is another important factor. Popular sport can be a route for criminals to become “celebrities” by associating with famous people and moving upwards to powerful circles within established society.
The issue of money laundering in sports is attracting the attention of regulatory authorities. The British FBI is in the process of investigating English clubs for potentially being a front for money laundering. Also during the summer of 2009, there was a money laundering scandal in cricket which lead to the arrest of a prominent investor in the cricketing world.
Many feel that sports, due to the large sums of money passing through the hands of individual clubs, players and agents has huge potential for money laundering. This article turns to throw more light on how criminals are using the sports industry to clean their ill-gotten funds.
If we want to examine money laundering through sport, football is an obvious candidate. Football is by far the biggest sport in the world. One way that the criminal can use football to launder the dirty money is by using a front club. For example the criminal will purchase a football club in a lower tier league (example division 1 league in Ghana) with the dirty money. Use this same dirty money to manage the club to get promotion to the elite league (example premier league in Ghana). The owner (criminal) then sells the players abroad to get clean funds. At times after branding the football club to a certain level with the dirty money, the criminal sells the club to investors for clean money. This is made possible because of low or absent entry barriers of the sports industry. Take the ruthless office of the Envigado cartel known as La Oficina for example. It conducted something of a corporate takeover of Pablo Escobar’s trafficking operation and used Colombia’s top-flight football division, Primera A, to aid its cash flow and cash cleansing activities.
Another way of laundering money through sports is sport betting. Betting on sports offers another means of allowing substantial money flows to move beyond the control of governing bodies. Due to its particular structure, as well as the considerable need to finance the system at short sight, notably at club level, football offers an interesting platform for irregular betting activities. The criminal is able to use the dirty money to bet on sporting activities and receive clean money for his or her wins from the betting.
Bribery and corruption, which is a predicate offence of money laundering, is affecting the integrity of sports around the world. Club officials, agents, referees, players engage in bribery and corrupt practices (as depicted in ANAS exposé #12) and wash the funds through shopping and other means.
The sports industry, particularly football, is vulnerable to money laundering because of the complicated networks of stakeholders. The sector is complex and characterized by opaque networks of stakeholders and interdependence between the different actors. With the growth in the number of international transfers and the skyrocketing sums of television and sponsorship money that is spent on sales and purchase of players, more and more people are involved in the sector such as managers, intermediaries, sponsors and companies who own players. This large number and range of stakeholders and the money flows facilitates the concealment of fraudulent activity, in particular as many of the transactions and the criminal activities are carried out abroad.
The sport industry is also susceptible to tax evasion, another predicate offence, where clubs hide signing-on fees of players and image rights funds from tax authorities. This is done by employing dubious accounting practices and procedures.
Money laundering is further fueled in the sport industry with the irrational transfer payment for players. The criminal transfers the dirty money to a tax haven by purchasing a player from there.
The sport industry gives the owner of the club (criminal) access to local and international Politically Exposed Persons (PEPs) through the team and official matches. The criminal uses these contacts to ensure that major public works are assigned to him.
Mention can be made of manipulation of cash received from ticket sales by falsifying the books of the club. The criminal adds some of the ill-gotten funds to the cash received from the ticket sales and deposit the funds into the bank account of the club.
Another vulnerability in sport, which is attracting criminals to use it as a washing machine, is the diversity of legal structures in the sporting industry. The legal structures of football clubs in general vary from private limited companies to foundations. Often the stadium activities are managed through different companies. The lack of regulation or control over legal structures and the ownership or control of football clubs means that they are easy to acquire.
The above mentioned vulnerabilities in the sporting industry can be eliminated or reduced by providing a comprehensive and robust legal framework for sport in general and football in particular and adopt measures for the fight against the criminal activities that haunt professional football, including money laundering, illegal betting, doping and match fixing.
Also government institutions responsible for the development of sport should institute directives and regulations to regulate the activities in sport such as player transfer, purchase of clubs, tax evasion.
Setting up a body to control the finances of sport will go a long way in the fight against money laundering in sport as this will warrant the fairness in sports. The body will ensure that the books are balanced for the sporting season. The members of this body will consist mainly of accountants and lawyers as it is currently being practiced in France with the setup of Directions Nationale du Controle de Gestion (DNCG) and in Italy with COVISOC.
In Ghana, the AML/ CFT directive should be extended to cover other industries, including the sporting industry so as to ward off criminals from washing their ill-gotten funds. The directive should include how to identify and report suspicious activities, transactions and behavior in sports, the appointment of an Anti-Money Laundering Reporting Officer (AMLRO), Identifying of Beneficiary Owners of Clubs etc.
The enforcement and implementation of the Player transfer matching system is another way to ward of criminals from using the sporting industry as a washing machine. The system is firstly, a contract matching system to ensure that all parties agree on the details of the transfer, secondly a contract validation system to ensure that the terms of a transfer are correct and thirdly a payment recording (settlement) system. It facilitates transfers and shows where the money is coming from and going to, with the aim of making transfers more transparent.
Constant training and awareness on Anti Money Laundering issues for all stakeholders in the sporting industry including sport journalists and supporters will help in the fight against money laundering. This will help club officials to ask themselves various questions when carrying out transactions; for example: “Do we know exactly whom we are dealing with?”, “Have we properly identified and verified the persons that we are doing business with?”, “Do we know how the purchaser/ investor/ trader/ agent has found the funds to pay us?”
Money Laundering in sport remains a considerable issue which cannot be tackled alone by industry players but requires the cooperation and support of everybody including government institutions and officials by putting in place structures and controls to reduce the possibility of criminals using sports to legalize their illegitimate wealth.
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