Case 6.10. FIFA: The Kick of Bribery

The Fdration Internationale de Football Association (FIFA) is the worlds foremost soccer (or futbol/football) governing body. FIFAs purpose is to regulate and promote soccer around the world. FIFA consists of six constituent continental confederationsthe Confederation of North, Central American and Caribbean Association Football (CONCACAF), the Confederacin Sudamericana de Ftbol (CONMEBOL), the Union des Associations Europennes de Football (UEFA), the Confederation Africaine de Football (CAF), the Asian Football Confederation (AFC), and the Oceania Football Confederation (OFC) and affiliated regional federations, national member associations, and sports marketing companies. There are 209 various level associations affiliated with FIFA and all are required to pay annual dues to both their regional associations and FIFA. Headquartered in Zurich, Switzerland, FIFA has ties to the United States through soccer affiliates and banking and a development office begun in the United States in 2011.

Power, money, and fans were FIFA. What began as a tiny operation run from a house in Switzerland has evolved into a multibillion dollar franchise with an international web of soccer organizations, marketing companies, and commercial rights. FIFA held several types of world championship events, but its mens teams championship, the World Cup, is the most watched television event in the world. That draw brings FIFA corporate sponsorships, ad dollars, and a steady flow of countries and cities seeking the event as a boost for their countries. According to FIFAs published income statement for 20112014, it had total revenues of $5.718 billion, 70% of which ($4.008 billion) was from the sale of television and marketing rights to the 2014 World Cup. FIFAs profits during this period were $338 million. The television rights for 20152022 brought in $1.5 billion from the United States rights, consisting of Fox Sports (United States) and Telemundo (Spanish). FIFA funds are given as development funds to members for the promotion of soccer. Through this funds distribution, FIFA president, Sepp Blatter, was able to develop strong voting ties with countries around the world. The FIFA development program dispensed $1.5 billion for the 20112014 period. Mr. Blather is an enormously popular figure, particularly among the African member nations.

However, in May 2015, the U.S. Federal Bureau of Investigation (FBI), along with law enforcement officials from other countries, conducted a pre-dawn raid at a luxury hotel in Zurich where members of FIFAs governing body (the Executive Committee or ExCo of its the congress), which consists of representatives from the associations and federations listed above, were staying as part of one of their international meetings. As a result of the raid, 14 current and former FIFA officials and members of its congress were indicted on corruption charges by the FBI. Despite these events, Mr. Blatter retained his position, with a vote by the congress just a few months following the arrests. In December 2015, there was another raid at the same hotel in Zurich and another 16 officials were indicted.

FIFA Ethics, Activities, and Suspicions

FIFA has long been suspected of corruption and, in fact, in 2012 hired former U.S. attorney, Michael Garcia, to conduct its own internal investigation to determine whether there was indeed corruption within the organization. Mr. Garcia delivered a 350-page report in 2014. However, FIFA refused to release the report and instead issued its own executive summary in which it stated that the Garcia report was materially incomplete, with erroneous representations of the facts and conclusions. Sports Illustrateds introduction to its article on the FIFA arrests read, For any of us whove followed soccer over the years, for any of us who love the World Cup but reject the men who run it, weve been waiting for the day of reckoning for FIFA. However, after the 2014 internal investigation was completed, FIFA refused to release the report. Instead, it released only an executive summary.

FIFAs code of ethics was first adopted in 2004, and revised in 2006, 2009, and 2012. The code provides that FIFA officials were prohibited from accepting bribes or cash gifts and from otherwise abusing their positions for personal gain. The code also established that FIFA and its confederations and member associations owed a duty of absolute loyalty to FIFA. By 2009, the code was changed to spell out that all FIFA officials have a fiduciary duty to FIFA and all of its constituent confederations, member associations, leagues, and clubs. Personal gain by FIFA officials from confederations, member associations, leagues, and clubs was prohibited.

FIFA really began to attract attention (and investigators) when it made the decision to award the 2022 World Cup to the teeny, tiny nation of Qatar. Qatar had neither the weather (120 degrees in the summer) for the Cup nor the manpower to build the facilities necessary. There have been deaths of migrant workers due to heat exhaustion they experienced during construction of facilities for the event. The Qatar decision was a puzzler for many. The FBI three-year investigation of FIFA began shortly after the Qatar decision and culminated in the Zurich raid.

The Process for the World Cup Country Selection

The ExCo typically followed a process for awarding the World Cup that allowed bid committees for the competing nations to campaign for votes among the members of the executive committee. At least six years prior to each World Cup, the ExCo typically held a vote in which its members cast their votes via secret ballot. For example, for the 2022 World Cup, the campaigning and voting occurred in 2010 with the United States, Australia, South Korea, Japan, and Qatar competing. Qatar was awarded the World Cup by the secret ballot. Every confederation member has one vote. So, for example, Qatar has an equal vote with France, Italy, or Brazil.

It was the voting structure that allowed what is alleged in the indictment to occur. The goal for attaining the World Cup for your country was to line up as many votes as you could. This part of the process is where money entered the picture. With development grants doled out to various confederations, their votes were secured. However, a portion of the FIFA money doled out was then kicked back to members of the FIFA ExCo. Likewise, the marketing companies could enter the picture by using their funds to influence votes in order to maximize their commercial rights. Money flowed up and down the hierarchy of confederations as the vote approached.

Sports Marketing

FIFA and its affiliates had contractual relationships with sports marketing companies. These companies would pay FIFA for the rights to license, market FIFA, and negotiate television contracts. During the 24-year period covered by the indictment, a network of these marketing companies developed to capitalize on the expanding media market for soccer, particularly in the United States. Over time, the marketing companies became increasingly intertwined as they spread throughout the world, including the United States. Those who owned the marketing companies or were associated with them were also members of the FIFA ExCO and were able to generate unprecedented profits through the sale of media rights to soccer. Because of the fiduciary duty provisions of the FIFA code of ethics, these transactions that benefited FIFA officials, but not FIFA, had to be concealed. To conceal the transactions, the marketing companies and their owners established shell companies, various bank accounts, and other structures to conceal the flow of money to those who were not permitted to retain funds that rightfully belonged to FIFA. Once the use of marketing companies became so lucrative, competition sprung up among the marketing companies and the officials were able to obtain payments in exchange for awarding marketing contracts.

In addition to these activities, those operating the marketing companies became officials of the various confederations for soccer and then rose to positions at FIFA or on FIFAs ExCo. As members of the ExCo, they began to solicit bribes from representatives of countries that were seeking to hold the World Cup in exchange for their votes. Because many of the marketing companies and confederation offices were in the United States and many of those involved were either U.S. citizens or doing business in the United States, they were subject to U.S. laws, including the FCPA. Because FIFA was an NGO, payment of bribes to FIFA officials was a violation of the FCPA. The indictment alleges a 24-year scheme of bribery among and between FIFA executives, businesses, and governments that required money laundering, fraud, and conspiracies to accomplish.

Some of the specific allegations in the 47-count indictment include:

Members of the executive committee of FIFA accepted bribes from Morocco for it to hold the 1998 World Cup. Apparently Morocco was low on its bid because France eventually got the 1998 World Cup

Chuck Blazer, a U.S. citizen, and once the general secretary of CONCACAF, FIFAs umbrella organization for North and Central America and the Caribbean, was charged with and has entered a guilty plea to accepting a $10 million bribe to award the World Cup to South Africa. Mr. Blazer served on FIFAs ExCo from 1997 to 2013. Mr. Blazer was indicted previously in 2013 and his guilty plea settled the criminal charges, but the record of his case was sealed until the 2015 indictments. Mr. Blazer apparently cooperated with federal authorities in building their case.

The general secretary of FIFA, who worked for Mr. Blatter, is alleged to have transferred $10 million from FIFA accounts in Switzerland to a Caribbean soccer organization as a bribe to secure votes for South Africas bid to win the World Cup.

Members of the executive committee accepted bribes for the award of broadcast rights for the CONCACAF Gold Cup in 1996, 1998, 2000, 2002, and 2003.

Overall, the indictment alleges a total of $150 million paid in bribes.

The FIFA Third Parties

One of the issues that has been raised is the obligation of those who were doing business with FIFA to further explore the widespread allegations of corruption or the problematic transfers of money around the world in chain bank transactions. For example, Adidas, Coca-Cola, Visa, and Nike are all sponsors of the World Cup and other soccer events run by FIFA. Despite percolating criminal charges, reports, and other issues, none of the companies withdrew their sponsorships or raised questions or objections. However, all have indicated cooperation with federal authorities on the pending cases.

The indictment mentions a multinational sportswear company headquartered in the United States and is called Sportswear Company A, which is described as having signed a sponsorship with the Brazilian national soccer federation in 1996. Nikes website describes the same thing, but Nike is not named in the indictment. Nike has pledged cooperation noting, Nike believes in ethical and fair play in both business and sport and strongly opposes any form of manipulation or bribery. Nikes revenue from the sale of soccer products was $2.3 billion in 2014, up 21% from the previous year.

Adidas has been an official sponsor of FIFA for over 40 years and in 2014, it made $2.29 billion in revenue from its soccer products, up 20% from the previous year. Adidas has also noted that it demands the highest standards of ethics and compliance from its partners and is cooperating.

KPMG was FIFAs auditor but issued clean opinions for the organization for 16 years. Over that time period, KPMG did raise questions about several payments, but did not raise objections. In 2002, FIFAs general secretary wrote a letter to the ExCo accusing Mr. Blatter and others of fraud. While the letter made its way into the media, KPMG only noted the matter and did not pursue the allegations in the letter. Also, a member of the audit committee for FIFA left the committee because he had been charged with fraud and money laundering in connection with a card-swiping system for public hospitals in his native Cayman Islands. The only disclosure made by FIFA was that the member had temporarily left the audit committee. KPMG did not note or disclose the criminal charges. KPMG severed its relationship with FIFA in June 2016. KPMG has its own internal investigation into its audit work for FIFA. PwC was appointed FIFA as its replacement.

FIFA Follow-Up

Despite the vote of confidence in Mr. Blatter in the days following the raid in Zurich, he agreed to step down as FIFAs chief executive on June 2, 2015, saying, What counts most to me is the institution. His presidency, which began in 1998, ended abruptly and surprisingly as authorities in the United States confirmed that they were continuing their investigation to try and connect Mr. Blatter with the criminal enterprise the indictment alleged. The Swiss attorney general has brought criminal charges against Mr. Blatter, but he claims that FIFAs ethics committee has dropped ethics violations charges against him. However, he has been banned from soccer by the committee for eight years. There had been a recommendation of a lifetime ban. Mr. Blatter appealed the decision and his suspension was cut to six years.

The United States charged 27 soccer officials, including the former president of Honduras, Rafael Callejas. There have been fifteen guilty pleas among those charged, including one from Mr. Callejas. Mr. Blatter was not charged in the U.S. cases. Trials begin in November 2017.

Answer Questions:

1. Using your Ethical Matrix assignment as a reference tool, identify which ethical framework(s) you/your team management may have used that caused or contributed to this problem. As management analysts (working on this case), it is helpful to recognize. If useful, identify who used this/was responsible.

2. Again using the Ethical Matrix, you (your team) should pick another theory that could have resulted in a MUCH better outcome.