Football Crime: Are Criminals Scoring in South African Football?

At the beginning of July, The Business Report published an article on the facilitation of financial crime by sport, particularly football. It drew attention to a study by the Financial Action Task Force (FATF) of June 2009, which found that football was vulnerable to abuse by criminals to launder proceeds of tax evasion, corruption, drug dealing and human trafficking.

Published on 21 July 2009 in ISS Today

At the beginning of July, The Business Report published an article on the facilitation of financial crime by sport, particularly football. It drew attention to a study by the Financial Action Task Force (FATF) of June 2009, which found that football was vulnerable to abuse by criminals to launder proceeds of tax evasion, corruption, drug dealing and human trafficking.

The FATF study looked at vulnerabilities of the sport across the globe emanating from its ‘structure, … financing and … culture’. Key to these dimensions was what FATF referred to as ‘the surge of commercialization of sport, the unprecedented internationalisation of the sports labour market, the considerable sums of money flowing in from broadcasters and sponsors, and massive cross-border investments by sponsors, including the sporting industry itself and sometimes “super rich” private investors.’

The countries that took part in a workshop to discuss money laundering vulnerabilities were: Brazil, Italy, Belgium, Cyprus, France, Ireland, Monaco, Norway, Russia, Slovenia, South Africa, Switzerland, the Netherlands and the United Kingdom. The Egmont Group (an association of financial intelligence units) and the International Olympic Committee also had inputs.

The report observed that, unlike in other business, profit was not the predominant motivation that attracted criminals to sport, but also the prestige that they could earn from associating with it. The more popular the sport, the greater the lure to prestige-craving criminals. Sport could also provide the pretext for certain ventures and transactions that would otherwise raise suspicion.

The FATF study did not find South African football to be tainted by money laundering, a finding that appeared to be based on the low volumes of funding involved. It is not clear if the other factors which attract dirty money to football were considered and dismissed. Until a comparative, comprehensive study on local football happens, speculation on the involvement of criminal elements in local football is likely to linger. The match-fixing scandal that emerged a few years ago and was not satisfactorily resolved is part of the reason for this.

The connections between crime and football can be direct or indirect. Match-fixing, a perverse form of gambling, directly links football to corruption and fraud. Universal condemnation has therefore been easy to mobilise. The same can be said of the evasion of tax on earnings derived from participation in or management of football competitions. It is not as easy to detect and therefore clamp down on more insidious, indirect links between football and crime. A starting point is to consider whether the way the sport is funded in South Africa opens it to indirect connections.

A number of questions need to be considered in depth. Is it possible for proceeds of drug trafficking to be mixed with funds derived from lawful sources after the latter have been collected? Can players or officials lump together funds earned from fraud or extortion with earnings from football? Can players and/or their agents evade tax on transfer fees for local players contracted to foreign football clubs?

Basing itself primarily on the five biggest leagues in the world (all running football in western Europe), the FATF study highlighted the main contemporary sources of funding for football as:

A major distinction drawn between the advanced, more professional footballing leagues and the developing ones was the proportion of funding attributable to TV rights, commercial revenues and brand name marketing as compared to that derived from financial support from owners. TV rights, commercial revenues and brand name marketing are particularly, even disproportionately relevant to football clubs in the advanced leagues. The report noted that: ‘clubs in countries with less developed economies rely for the biggest part on financial support from owners and in some cases also local or national government.’ In South Africa, corporate sponsors are quite a significant funding source.

The source of funding of a football club has a bearing on the extent to which an audit trail can be strung in tracking the legitimacy of such funding. The beneficiary of patronage can hardly be expected to ‘look a gift horse in the mouth’.

The funds produced by football in South Africa may be small when compared to the larger leagues, but when viewed in regional and continental terms, local football is lucrative. There are several important financial actors involved, who may include some unscrupulous characteristics. Apart from the club itself, there are players, corporate sponsors, the media, individual investors (the owner/patrons), football players’ agents, government structures that subsidize clubs or own stadia and playing fields, private owners of real estate, supporters (who, in some cases, provide large amounts of cash beyond specific gate fees), and suppliers of goods and services.

During the course of any season, most of these actors will have numerous interactions for various purposes. The success of these interactions is measured by the relative success of the team around which all of them gather. Such success is in turn dependent on the turnover of large sums of money. The quest to secure the required money tends to discourage diligent aversion of corruption, tax evasion or money laundering. Indeed, the FATF study found instances of all these practices in Belgium, Argentina, Italy and Mexico.

In South Africa, where football clubs are short of capacity and resources in many basic areas, there are many possibilities of favouritism and corruption in the establishment of contractual relationships between clubs and service providers. The funding base of most teams in South Africa is fragile. This tends to adversely impacts on the independence of the structures by which the clubs are managed. It is not uncommon for clubs to operate with boards that are subservient to the business interests of club owners or patrons. The degree of subservience is regularly highlighted when decisions are taken on the dismissal of coaches or hiring of new players.

The possibility of misrepresenting match revenues in order to create an explanation for large bankings needs to be seriously examined. Thereafter the deposited funds can be withdrawn and disposed of according to the whims of the club management. A club patron/owner of a football club may mingle proceeds of extortion with gate receipts in this manner. As the FATF report noted, this risk is higher with amateur clubs than it is with larger, professional ones.

To respond to the questions raised above, then, one can say that:

Only research can answer the question whether these practices are occurring in South Africa.

Charles Goredema, Head of the Organised Crime and Money Laundering Programme, ISS Cape Town