Kicking off the AML collaboration between sports clubs, banks and regulators

In the past decade, the monumental incline of revenue within sport has brought with it more spectacle, more worldwide fandom and, inevitably, a larger threat of financial crime. Where there are huge sums of money, criminals will look for ways to clean their money through supply chains.

Sport is a different kind of beast which brings into account legalities between various third parties to make it difficult to track monetary flow, with some sport stars managed by agents or indeed crime syndicates. Sponsorship deals and betting services are other means by which money launderers can exploit the sporting world, with football being the internationally-loved activity bringing the most high-profile cases of corruption.

The key players

Having looked into the attraction of gambling services – betting shops, casinos and online betting apps – on the Arachnys blog already, its close association with the sporting world highlights its similar connections to criminal underworlds.

As a matter of fact, the betting market across all sports is estimated to be around a gargantuan $2 trillion each year, with online betting a premium source for Organized Crime Groups (OCGs) to facilitate money laundering through match-fixing. Indeed, these groups look to criminally control betting operators, and can easily alter identities and create betting accounts or e-wallets to bet on fixed matches, particularly within football, and especially in the European and South American markets. Currently, an EU study has shown that corruption in world sport amounts to a costly £78 billion, proliferated by organized crime syndicates. As Europol notes, larger monetary sums enter the financial system undetected through unregulated betting companies in Asia. Traditional banks can be misused through match-fixing operations, or indeed through alternative banking platforms that are not regulated as stringently. Even outside of football, cricket is a sport infected with match-fixing, with cricketer Yasi Hameed claiming that “almost every match was fixed” after allegedly accepting £100,000 for fixing a cricket game.

In some cases, OCGs can already be in complete control of a football club, giving them unprecedented access to their financial accounts; in which case, it is imperative that ultimate beneficial owners (UBOs) of these big-money businesses are investigated through due diligence, as it can be a hotbed of criminal activity. The clubs can then be used to flush dirty money through with legitimate transactions. Much like other sectors being unwittingly commingled with other criminal activities including human or drug trafficking, sport is no different, and suffers particularly for tax offences. Players themselves can also have connections to crime networks, with their transfers between clubs maximising match fixing efforts.

Other OCG financial misconduct activity includes, but is not limited to, the following:

• Over-inflating the salaries of players and club staff
• Falsifying payments to agents and third parties that manage players
• Using cash gate receipts to mix legitimate and illegitimate funds
• Exploiting club sponsorship and television rights deals
• Using community-centric spending programmes

In Argentina, ‘barras bravas’ are organised gangs associated with football in that drug dealing and racketeering occurs, as well as gaining money from parking sales near stadiums. In Brazil, André de Oliveira Macedo (an alleged leader of a large OCG) was arrested for cocaine shipments, but claimed his riches were from serving as a football agent. Not that corruption is limited to certain continents; Europol’s crimes unit exposed a Russian OCG that laundered money through Portuguese club Uniao Desportiva de Leiria, and a widespread scandal into football’s governing body FIFA in 2015 showed administrators arrested at the call of US prosecutors, and the resignation of its president.

Why is it so easy?

Sports such as football, while bloated in their revenues, do face a lot of financial instability; any fans of such sports will be aware of fears of liquidation, administration and the need for quick investment for clubs to survive, particularly where organised leagues at a club level include huge financial wins and losses through promotions and relegations respectively.

As the Financial Action Task Force (FATF) makes clear, this particular point around relegation can make clubs in financial trouble in need of ‘financial doping’, defined as “the situation in which a sports franchise borrows heavily in order to contract and pay high-performing players, jeopardizing their long-term financial future”. This can happen more as a shotgun remedy for poor performance in the hope that better players will salvage wins and secure future safety. It is a desperate short-term method that can invite infiltration by OCGs.

Elsewhere, the report highlights a clear lack of regulation and legalities involved with the ownership in clubs. With this lack of control, it makes it relatively easy for companies or individuals with large sums of money to take over a club. In the case of OCGs, it provides a front to launder illicit proceeds through.

In terms of individual players, the FATF looks into the differences of their ownership as a source for why money laundering can continue undetected. Full legal ownership of players occurs particularly in South America, whereas in Europe, investors can collect funds through a talent pool which gives them rights to part of the revenue if the player is transferred. It provides a better source of ROI than through investing in a club and is often misused. On the subject of transfers, the number of actors involved – clubs, owners, players, agents, third parties – makes performing due diligence on source of, and end use of, funds particularly misleading, as does the cross border money flows that exist beyond the control of national football organisations.

Current and future actions

Given these geographical differences, the FATF recommends that the international sporting industry be treated as a robust industry that needs a better regulatory framework through financial transparency and management, and more clear control of external accounts; collaboration with banks and consultancies should help to improve due diligence, transaction monitoring and KYC processes.

It begins with the football clubs’ own governance of its financial incomings and outgoings. The European Commission highlights that it is their responsibility, much like a bank’s, to report any suspicious transaction activity to police or face criminal sanctions. It also notes that advertising contracts and image rights of players are easily exploited by criminals for tax evasion, as the contracts are often transferred to bank accounts based in third-world countries.

Of course, banks should assist further in conducting due diligence for these accounts, as well as the audit trails between beneficiaries of these funds and their end use as an AML procedure. Properly documented and corroborated data between the football clubs, financial institutions and regulations should be in place for identifying sources of wealth and the beneficial owners in these clubs with vast sums of money. Complex transactions will need to be segmented as money laundering or tax evasion, needing co-operation still between a bank’s financial investigator and tax authorities.

There is still a large lack of regulation in sport which allows organized crime groups to easily own clubs and players alike, flushing illegal funds through these businesses undetected. The burgeoned financial positions of these clubs make it an attractive prospect for financial criminals who can exploit its alleyways for potential exploitation: betting, agents, and gang fandom. Stricter, better framed regulations are needed to allow AML processes between the clubs and their banks to be improved and identify the criminals at play, the players they pay, and the links between underground networks that manage to hide in plain view, even in the world’s most watched sporting events.