Financial Action Task Force (FATF)

The OECD's 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, released an official report in July 2009 that warns of the serious risk of sports, in particular football, of being vulnerable to criminals.

The report advises of the potential danger of criminals and other persons exploiting the weak regulations and cross border nature of the financial transactions to launder money, fix matches, commit fraud and even traffic humans and drugs.

FATF cited more than 20 cases of football-related money laundering obtained from responses to a questionnaire sent to governments and Football Associations in 25 countries, including the UK, Argentina, Brazil, France, Italy and the Netherlands.

The report confirms what many fans have felt for a while i.e. that money is corrupting the once "beautiful game". The professional football market has undergone an accentuated growth due to a process of commercialisation since the beginning of the 1990's. Indeed, according to the Deloitte Annual Review of Football Finance, the total size of the European football market grew to an estimated 13.8 billion EUR in 2007. Money in football has surged mainly as a result of increases in television rights and corporate sponsorship.  Simultaneously, the labour market for professional football players has experienced unprecedented globalization.  The combination of these factors means that football now seems to be confronted with various forms of crime and corruptions – including money laundering.

Football is particularly vulnerable for three reasons: the sector's structure, the sector's finance, and the sector's culture.  Football is seen as an easy market to penetrate; it has low or absent entry barriers, complicated networks of stakeholders and diverse legal structures, all of which make the concealment of fraudulent activity relatively easy.

On top of this structure, football often deals with considerable sums of money which can be irrational in character; the future results of clubs are often unpredictable and many clubs are in bad shape financially. These factors make clubs a good target for criminals to launder large sums of money across borders knowing that many clubs will ignore the dubious nature of these funds in order to keep "in the game".

These points are exacerbated by the societal role of football and the social vulnerability of players which in turn leads to players being manipulated and the authorities and clubs turning a "blind eye" in order not to shatter the sport's illusion of innocence.

In the 20 cases cited by the FATF report there are two cases involving tax evasion by British clubs and players. In one case, according to the report, "A disclosure was made by a player, revealing that his signing-on fee was disguised as part of a fee to a foreign agent. He confirmed that the agent paid him £300,000 abroad and did not disclose this to HMRC." The report goes on to suggest that the Club was aware that this payment was part of a tax avoidance scheme and that in addition it would avoid some £38,000 in social security payments.

In the second case, the Club avoided paying tax through the use of image rights. A non-UK national player entered into an image rights agreement with the Club. The image rights had no commercially exploitable value but the Club still paid almost £1.4 million to an off-shore company in which the player had shares.

HMRC have confirmed that they gave details of both these cases to FAFT which were settled out of court, with both Clubs required to pay back all the evaded tax. The spokesperson for HMRC said that they “do recognise that football is vulnerable to money laundering and tax evasion, however, it is not unique and we see this happening in other areas of business too."

It is clear that these issues need to be addressed both in football and in sports in general before these forecasted problems become a wider reality. However, the international, national and regional bodies will all have to come together to impose uniform regulations and adopt best practice models and create a unified approach.  If this does not happen then criminals will find loop holes in the system to carry on exploiting sport for their own gain.

It is likely, following the release of this report that both government and the regulatory bodies will start to crackdown on those organisation, clubs and players who breach the law.  We are already seeing this approach in the financial sector with tighter regulations, a growing desire for transparency and a tougher approach to prosecution. It is probable that this will happen to sport as it is just too big an industry for government to turn a blind eye to.

If you are worried that you or your company may be the subject of an investigation, or you suspect breaches of regulation or criminal law, then please pick up the phone and call Irwin Mitchell on 020 7421 3883. Our specialist team is available 24 hours a day 7 days a week. The sooner we are involved, the sooner our specialist legal advice can help you