Australia: The FIFA World Cup of Fraud: A reminder of the long reach of the US law

THE "WORLD CUP OF FRAUD"

On Wednesday 27 May 2015, authorities in Switzerland arrested 7 current and former executives of the Fédération Internationale de Football Association (FIFA) at a exclusive hotel in Zurich. The officials arrested in Zurich include citizens of Brazil, Costa Rica and Trinidad and Tobago. Each of them faces extradition to the United States to face charges.

Two of the arrested officials are current vice presidents of FIFA's executive committee. A further 2 former FIFA officials and 4 individuals, being sports marketing executives, were also arrested in the United States. The arrests are the culmination of an investigation lasting 3 years by the United Stated Department of Justice (DOJ).1

FIFA'S OWN GOAL

Officials from the DOJ allege that the arrested FIFA officials had obtained bribes totalling US$150million since 1990.2 The charges against the FIFA officials (brought under various provisions of the US criminal code), are set out in a pleading that stretches to 164 pages and can be broadly summarised as:

  1. obtaining bribes in connection with the selection of the host location and the determination of the broadcast rights for the World Cup;
  2. money-laundering;
  3. fraud; and
  4. tax evasion.3

The charges against the sports marketing executives relate to the payment of, and agreement to pay, bribes to secure lucrative television broadcast deals.

The DOJ also revealed that it had accepted guilty pleas from four individuals and two corporate defendants, in connection with the same allegations. Those defendants, including Mr Charles Blazer, a former member of FIFA's executive committee, have been assisting the DOJ with its investigations into other FIFA officials.

WHAT WILL HAPPEN NEXT?

In a press conference that appeared somewhat theatrical by Australian standards, US prosecutors stated that they were issuing a "red card" to FIFA and that "this is only the beginning". The arrests occurred within days of a scheduled election of FIFA's president and may therefore undermine the standing of FIFA's long serving president, Sepp Blatter. Immediately prior to the election, it appeared that football associations from the United States and Australia, together with a significant number of delegates from UEFA, the European football association, intended to support Mr Blatter's challenger, Prince Ali bin Al-Hussein of Jordan, at that election.4 Ultimately, Mr Blatter was re-elected for a fifth presidential term.

In a separate investigation, Swiss Federal Prosecutors have opened an investigation into the selection of the location for the 2018 and 2022 World Cups. FIFA officials will be interviewed as part of this investigation. Both the United States and Australia unsuccessfully bid to be the host nation of the 2022 World Cup. Prominent Australians, including Senator Nick Xenophon, have previously criticised the manner in which Qatar was selected as host of the 2022 World Cup.5

Clearly, these events will have a significant impact on FIFA's operations and reputation, although exact outcomes may not be known for some time.

HOW DOES THIS AFFECT YOU?

The long reach of US law

The DOJ states that it will prioritise prosecutions according to what it considers to be the "most serious offences". Specifically, offences that cause Americans to suffer financial fraud, will be a priority.6 The FIFA arrests remind us that the United States will prosecute contraventions of its laws, even where they occur overseas or are committed by individuals who are not United States' citizens.

Prosecutions of this nature depend on the conduct giving rise to the offence having some "connection" with the United States. In the present case, the DOJ relies on the fact that FIFA maintained a development office in the United States and the involvement of members of CONCACAF, FIFA's North American regional association, as jurisdictional grounds to bring these criminal proceedings, including against US and non-US citizens. In any event, the requisite "connection" does not need to be significant, for example, the use of a United States bank account may be enough to bring an entity within the reach of US laws, at least in the context of contraventions of the Foreign Corrupt Practices Act 1977.7

Where a sufficient connection is demonstrated, and the DOJ elects to commence proceedings, the US may then rely on requests for extradition, that is the removal of a person from one country to another, in order to bring the individual before a United States court. Australia and the US have agreed an extradition treaty by which Australians who are alleged to have contravened the laws of the United States may be extradited to the US in order to be tried under the laws of that country.8

Effect on key stakeholders

Reports immediately following the FIFA arrests indicated that one of FIFA's major sponsors, Coca-Cola, had called for FIFA to "put its house in order".9 Similarly, any business that is found to have engaged in corrupt conduct is likely to find that its key customers and suppliers will distance themselves from that conduct and even the company, in order to prevent their own reputations from being tarnished.

Apart from significant reputational damage, corrupt conduct undermines business efficiency. The diversion of money to pay bribes or the loss of funds to fraud, removes cash from your business and can therefore contribute to cash flow issues. Such conduct will also limit the returns available to shareholders and other investors.

Preventing and managing fraud and bribery

Organisations need to ensure that they have proper systems in place to understand risks to their business. Where instances of fraud or other corrupt conduct are revealed, swift action is required to manage regulatory, reputational and financial risk. Investigations by a regulator are particularly expensive to a business in financial terms, but also in terms of lost productivity and ongoing uncertainty.

It is worth noting that the penalties faced by those who plead guilty early in the process and who cooperate with US authorities, such as Mr Blazer, are likely to be significantly more lenient than for the officials arrested on Wednesday morning. Regulators in Australia similarly have mechanisms by which leniency may be provided to those who cooperate with regulators and assist with investigations.

UPDATE - 3 JUNE 2015

Less than a week after securing re-election as president of FIFA for a fifth term, Sepp Blatter has resigned. An election for his successor will be held towards the end of the year and Mr Blatter has indicated that he will stay on as interim president until that time.

At the time of this update there were reports that Mr Blatter was also the subject of an investigation by the FBI.10 It seems clear that the arrests during the FIFA conference, last week, will have a profound and ongoing impact on the organisation.

Footnotes

1" Nine FIFA Officials and Five Corporate Executives Indicted for Racketeering Conspiracy and Corruption", 27 May 2015, United States Department of Justice

2Ibid

3 United States of America v Webb & Others, 15 CR 0252 (RJD) (RML), filed in the Eastern District of New York, United States District Court on 20 May 2015

4" Fifa crisis: Blatter denies responsibility and rebuffs Platini plea to resign", 29 May 2015

5 " Sponsors should hand FIFA a red card", 14 November 2014, Xenophon, N, The Hon Senator

6" Smart on Crime: Reforming The Criminal Justice System for the 21st Century", August 2013, US Department of Justice

7 See for example, "Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines" 15 December 2008, US Department of Justice

8See Extradition Act 1988 (Cth), generally, and more specifically the Extradition (United States of America) Regulations

9 " Coca-Cola says corruption has 'tarnished' the World Cup", 28 May 2015

10 FBI now targeting Sepp Blatter", 3 June 2015 & "Fifa corruption probe: Sepp Blatter is being investigated by FBI, claims report", 3 June 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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