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May 27, 2015 — Only the beginning

The news came out in drips and drabs this morning.

There was a raid on a hotel in Zurich, Switzerland, and men in suits were marched into a car partially draped by bed sheets to keep the identities of the men from the prying lenses of the papparazzi. The car was parked under a sign which said, ironically, “VANITY.”

Later in the day, a phalanx of black-shirted FBI agents entered the Miami offices of the Confederation of North, Central American, and Caribbean Association Football (CONCACAF for short), one of only six regional governing bodies of soccer in the world.

In the afternoon, during a press conference in Brooklyn, U.S. attorney general Loretta Lynch shocked the world with the revelation that the FBI and Swiss law-enforcement entities have indicted 14 people, including officials with world soccer governing body FIFA, and the current and immediate past presidents of CONCACAF. The charges include banking fraud, racketeering, bribery, and conspiracy dating back to at least 1991.

The charges are not insignificant; both Lynch and FBI director James Comey were at the news conference today, throwing their weight and prestige behind the indictments.

Meanwhile, across the ocean, a separate investigation in Switzerland is investigating the circumstances surrounding the vote five years ago to award the 2018 World Cup to Russia and the 2022 World Cup to Qatar.

The charges, taken together, have ramifications for the economics of large-scale sports enterprises, their governance, and their funding. It also has very large implications for entities which choose to partner with repressive regimes.

Even without today’s arrests, the next two men’s World Cups were already headed off a cliff. In the case of Russia, there are already stories about mysterious cost overruns in the billions of dollars, as well as the intimation that the cash is going to well-connected oligarchs in the Putin circle.

In the case of Qatar, the working conditions for those building the stadiums there are reported to be so oppressive that Human Rights Watch drafted a report on the issue. According to one narrative, there are almost a half-million Nepalese guest workers building facilities for the 2022 World Cup. None were allowed to leave the country to see to family after the recent earthquake that killed more than 7,000 people.

The thing is, the cost-cutting and glad-handing in these countries were very much preventable from an economic and planning standpoint. When Russia and Qatar won the right to host these World Cups, the two petro states budgeted enormous sums for the World Cup venues, counting on enormous revenue. But the price of oil has plunged dramatically, leaving a monetary shortfall that directly affects the imported construction workers, who are making little more than slave wages.

These low wages and poor working conditions contrast greatly with the large sums of money which are alleged to have changed hands in five-star hotels, according to the charging documents. It is estimated that nearly $150 million changed hands overall since 1991. Much of the documented bribery occurred right on the doorstep of the United States. The flagrant bribery, often in the form of stacks of hundred-dollar bills in brown paper bags, have been documented since at least 2008.

The chief whistleblowers and documenters of this corruption are two bloggers from the website named Dan Loney and Bill Archer. The two journalists have have documented the political intrigue that allowed people like former CONCACAF president Jack Warner to gain a position in the government of Trinidad & Tobago as its Works Minister as well as a seat in the country’s parliament.

Warner and current CONCACAF president Jeffrey Webb are amongst the 14 officials indicted today. Their nations of origin are a symptom of the larger problem when it comes to FIFA and regional governance in the game of soccer. Warner is from Trinidad & Tobago, the smallest nation to ever earn a berth in a FIFA men’s World Cup. Webb is from the Cayman Islands. Another CONCACAF official in the indictment, Julio Rocha, is from Nicaragua.

In terms of soccer, economics, and world prestige, these three countries are dwarfed by the likes of Mexico, the United States, and Canada within North America. However, when it comes to voting decisions within CONCACAF and every other soccer federation, one nation equals one vote.

This has led to people like Warner and others who are taking a page from the American political fundraising toolbox. For major decisions, such as voting for World Cups and top soccer officers, CONCACAF politicos would bundle groups of small nations to deliver majorities to their particular candidate. Bags of cash greased the skids.

The bribery was not limited to the soccer officials in the indictments today. Also charged today are a handful of officials linked to a soccer marketing company called Traffic. The company has made some inroads in the States, bringing Romario to the United States to finish his competitive career with minor-league Miami FC. Traffic is also a major stakeholder in the reboot of the North American Soccer League, a level below Major League Soccer. It turns out that the NASL’s Chairman of the Board, Aaron Davidson, was named in the charges.

But what Traffic is also known for is buying television rights for road U.S. men’s national team World Cup qualifiers and selling them to the highest bidder, even to the point of soaking Americans fans by making these game pay-per-view.

Now, as to the charges and their long-term effects: I think this is very much the equivalent of former U.S. attorney general John Erlichman and six other officials being indicted in the Watergate conspiracy in early 1974. It was only six months after that indictment that President Nixon resigned.

Kelly Currie, the acting U.S. for the District of New York, said as much during today’s press conference in Brooklyn: “Let’s be clear: this is the beginning of our effort — not the end.”

He’s right. It turns out that the investigation has already gotten four confessions, including one by former CONCACAF general secretary Chuck Blazer. Blazer, the affable soccer organizer who helped in the formation of the American Professional Soccer League in the late 1980s, eventually became an impresario who was nicknamed Mr. Ten Percent because of the bribes he sought and received. His testimony, above all others, could bring down a number of FIFA officials not yet indicted.

Now, a further player in this scandal, one which is being pushed into the background a bit because of the arrests today, is the world banking system. Already rocked by a currency manipulation scandal which cost several major banks some $3 billion in fines a week ago, several banks are accused of assisting a money-laundering enterprise which includes off-shore accounts in places like Hong Kong.

The American charging documents allege that Wells Fargo, Citigroup and JP Morgan Chase were used to convey bribes to soccer officials meeting in the United States. I find it rather befuddling that the bribery didn’t occur in Webb’s home nation of the Cayman Islands, a tax haven whose banking system is reputed to be more obtuse and secretive than the Swiss banking system.

While there is more to do, it is anyone’s guess where all this is leading. While a lot of people are wondering whether FIFA President Sepp Blatter is going to be a target for arrest, I think there are going to be some interesting sidelights for future jurisprudence:

1. Sunil Gulati. The current U.S. soccer president is the beneficiary of having a major international tournament, the centenary edition of the Copa America, scheduled for 2016. Charging documents allege that some $120 million was exchanged in order to have the Copa in the United States.

2. Nike. Part of the narrative in the charging documents mentions the bribery of the Brazilian soccer federation by a major sporting goods manufacturer. It is notable that Nike has been the official outfitter of Nike since the late 1990s.

3. Al-Jazeera/beIN Sports. The rights-holders to the 2015 Copa America (and likely the 2016 Copa) just happens to be fully bankrolled by the Emir of Qatar. As such, they have been extremely tight-lipped when it comes to controversies regarding FIFA governance. I am wondering if documents will show that the Qatari government has undue influence on editorial content on the network.

The indictment shows that the United States government sees the elimination of corruption as a state interest, even in an organization headquartered in Switzerland. It has trotted out the Racketeer Influenced and Corrupt Organizations (RICO) statutes for this case, which means that the defendants are going to have a difficult time in court defending themselves, and any damages and sentences will be triple what they would be without RICO.

Today’s charges have implications not only for the sport of soccer, for world financial markets, and for other organizations whose business practices have resulted in unusual financial windfalls, such as the International Olympic Committee and the National Collegiate Athletic Association.

Might they be next?


1 Comment»

[…] of you have read about these allegations through this blog entry. In it, we mention some of the marketing arms that have been involved in the crimes that are […]

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