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Customer & Third Party Risk

Will the Olympics be tainted by corruption?

Warrick Beaver

20 Jun 2016

The Olympic Flag flies in front of
REUTERS/Ricardo Moraes

With Euro 2016 long over and the countdown to the 2016 Olympics in Rio gathering pace, the question of how to tackle corruption in sport is as poignant as ever.

Only last year FIFA, world football’s governing body, was engulfed by allegations of widespread corruption.

Meanwhile, infrastructure projects for the Olympic Games in Brazil are also subject to investigation.

These events have caused many to rethink their approach to corruption in sport.

Why is this an issue?

Sports and corruption have had a long association with each other on varying scales — with hard-hitting consequences.

Modern sporting events, and their associated financial eco-systems, are extremely lucrative and interdependent enterprises. Revenues have progressively increased through digital television rights, internet marketing and corporate sponsorship.

There are a plethora of sporting ties to a variety of political and private interests; some of them are very complex and obscure.

This generates numerous opportunities for corruption and illicit activity.

What opportunities are there for corruption?

The opportunities for illicit activity in sport are numerous:

euro-2016-olympics-legacy-infographic

As a result, organized crime, tax evasion, money laundering and forced labor through sponsorship, franchising, construction and advertising arrangements can be widespread; especially in weak jurisdictions.

The European Union recognized the problem as long ago as 2007:

“Sport is confronted with new threats and challenges, such as commercial pressure, exploitation of young players, doping, corruption, racism, illegal gambling, violence, money laundering and other activities detrimental to the Sport.”

In many cases, governing bodies and executives have lacked the expertise and resources to maintain pace with the sheer scale of the expansion in corruption— both in terms of volume and complexity.

The interests represented by clubs and other parties have often proved too powerful to control, except on a consensual basis, thus limiting the possibilities for regulation and enforcement.

euro-2016-olympics-legacy-quote

How are financial institutions and corporates affected?

Financial institutions and corporates risk both reputational and financial damage if they are found to be associated with corruption.

They are part of the eco-system of sport by virtue of their business operations. This ranges from arranging and facilitating loans and building investment vehicles, to holding the accounts of players and officials.

Many corporations are engaged in sponsorship to enhance their profile and market presence, especially in the retail sector.

Football Soccer - Switzerland v France - EURO 2016 - Group A - Stade Pierre-Mauroy, Lille, France - 19/6/16France's Adil Rami fouls Switzerland's Admir Mehmedi resulting in a yellow cardREUTERS/Gonzalo FuentesLivepic TPX IMAGES OF THE DAY - RTX2H2X1
REUTERS/Gonzalo Fuentes

How are authorities fighting back?

In May 2015, the U.S. indicted several top executives of FIFA for alleged involvement in “rampant, systematic and deep-rooted corruption” following a major inquiry by the FBI.

Financial institutions were found to have allowed doubtful and suspicious transactions to be processed in the U.S., Europe and elsewhere.

Also, they ‘did not appear to have given a sufficient amount of scrutiny to the financial activities of the officials concerned, as many of these alleged corruption-related transfers passed through the international financial system undetected

So far, as a result of the fallout from the FIFA indictment and inquiry, up to U.S. $40 million has been recovered from the ongoing corruption investigation.

Jamaica's Usain Bolt (front R) takes the baton from team mate Yohan Blake as they compete with Ryan Bailey (front L) of the U.S., who took the baton from team mate Tyson Gay, in the men's 4x100m relay final at the London 2012 Olympic Games at the Olympic Stadium August 11, 2012. The Jamaican team won gold and set a new world record of 36.84 seconds. REUTERS/Phil Noble (BRITAIN - Tags: SPORT ATHLETICS OLYMPICS) - RTR36PV3
REUTERS/Phil Noble

What are the solutions for the future?

The answer to curbing corruption in most major sports is information sharing between governments, sports governing bodies, corporates and financial institutions underpinned by ethical codes and regulations.

For example, Interpol has an ‘Integrity in Sport’ programme, based around five core principles:

  1. Partnerships: encouraging all associated parties to help maintain its integrity and reputation, notably national sporting bodies, public authorities, financial institutions and gambling companies.
  2. Information: all partners require, and should be provided with, intelligence and tools enabling them to undertake their individual role in protecting the integrity of sport.
  3. Coordination: to ensure a comprehensive and unified approach by all agencies and authorities to both the prevention of illicit activity and criminal behaviour.
  4. Prevention: including education, the establishment of codes of discipline, ethics and conduct, as well as legislation that delivers appropriate sanctions and penalties for illicit behaviour.
  5. Proactivity: anticipating vulnerabilities and recognising situations involving a risk of compromising behaviour, conflicts of interest and bribery and putting the necessary preventative measures in place for the long-term preservation of integrity in sport.

Organizations must get their house in order and fully review their supply chains and exposure to corruption in relation to sports.

If they don’t, they should prepare to feel the full force of statutory regulation and public scrutiny.

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The views presented in this post are that of the author and not Thomson Reuters.

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