Lessons from the FIFA indictments

Regrettably, FIFA's recent corruption scandal -- complete with highly publicized office raids, FBI indictments, and Interpol arrests -- has not only tainted the image of the organization, but of the sport itself. As the corruption investigation continues to unfold, the biggest game in the world will be played under a dark cloud of corruption, illicit payments, and questions about the integrity of its many worldwide tournaments. This is a shame on many levels because sports -- when conducted fairly -- can so often provide great examples for how organizations should conduct themselves, compete, improve, and triumph.

But, a closer look at FIFA's alleged misconduct nonetheless reveals important lessons for international businesses who take compliance seriously.

The Scandal

First, a quick review of the allegations. According to the U.S. Department of Justice's 161 page indictment, FIFA officials engaged in a recurring pattern of schemes in which the officials awarded the commercial and marketing rights to prominent tournaments to sports marketing companies that, in exchange for securing and maintaining those rights, made personal kickback payments to the officials. The result, according the indictment, is that the defendants deprived FIFA and their constituent organizations of the full value of those commercial rights and distorted the competitive market for the commercial rights associated with soccer by undermining the ability of other sports marketing companies to compete for such rights on terms more favorable to the rights­ holders.

As a result of the indictments, 14 FIFA officials and corporate executives have been charged, and 7 of these have been arrested. Although he publicly claims otherwise, many observers believe that the subsequent resignation of FIFA's president, Sepp Blatter, was caused by concerns over his personal involvement or, at least, complicity in the alleged kickback schemes. See here for more on the fallout from the scandal.

Some Lessons

#1: Cultures of corruption are real

Perhaps the most overarching lesson from the indictment is how broadly FIFA became infected by corruption. After reading through incident after incident of kickbacks, one is left asking if any FIFA business was conducted fairly. As the indictment concludes:

"The corruption of the enterprise became endemic. Certain defendants and co-conspirators rose to power, unlawfully amassed significant personal fortunes by defrauding the organizations they were chosen to serve, and were exposed and then either expelled from those organizations or forced to resign. Other defendants and co-conspirators came to power in the wake of scandal, promising reform. Rather than repair the harm done to the sport and its institutions, however, these defendants and co-conspirators quickly engaged in the same unlawful practices that had enriched their predecessors."

A recent Scientific American article published in the wake of the FIFA scandal shows that organizational behavior can, over time, grow to accept misconduct as "normal." causing individuals throughout the organization to adopt and repeat these practices. FIFA, of course, is not alone in having become infected with corruption. A series of recent scandals involving major companies such as HP and Walmart also evidence cultures of corruption. See here and here

The lesson for business organizations is therefore that combatting misconduct not only involves preventing distinct events, but also must focus on creating a culture where misconduct is seen as unacceptable, immoral, and reprehensible. Developing and disseminating codes of conduct and related training session provide important tools to develop compliant organizational behavior and cultures. (Although as we will discuss below, that is only part of the equation).

#2: Third parties can perpetuate and extend fraud

A second key lesson from the FIFA indictments involves the role that third party organizations can play in facilitating and channeling fraudulent activity. The indictments make very clear that the kickback schemes were made possible by intermediary organizations that served as the conduits for the illicit bribes and payments. Paragraphs 84 and 85 of the indictment describes the rise to prominence of one of these intermediary companies, Traffic:

"In the late 1990s and 2000s, Traffic, through Traffic USA, continued to grow its business with CONCACAF and its regional federations and member associations. CoConspirator #2 and several high-ranking executives working at Traffic USA engaged in a number of bribery and fraud schemes in connection with their efforts to obtain various rights from CONCACAF, CFU, and various federations in the region, including the federations from Trinidad and Tobago, Costa Rica, and Nicaragua. ... As Traffic attempted to expand its operations and develop its ties with CONCACAF and CONMEBOL, several competing sports marketing companies sought a share of the growing profits associated with organized soccer. Frequently, those companies, like Traffic, paid bribes to soccer officials in order to win business."

While almost all international companies and organization -- like FIFA -- require associations with distributors, marketing companies, and other third party service providers to grow their reach in the market, they must ensure that these companies' activities do not become a conduit of wrongdoing. Compliant companies often include their channels and service providers in their ethical practices by, for example, including them in compliance trainings and regularly assessing contracts, documentation and accounting records to ensure that their activities are understood and transparent.

#3: Codes of Conduct mean little without effective action

Notably, the indictment notes that FIFA actually took multiple steps to put in place a code of conduct that, at least in its text, prohibited exactly the kickbacks:

"FIFA first instituted a written code of ethics in October 2004, which code was revised in 2006, again in 2009, and most recently in 2012 (generally, the "code of ethics"). The code of ethics governed the conduct of soccer "officials," which expressly included, among others, various individuals with responsibilities within FIFA, the confederations, member associations, leagues, and clubs. Among other things; the code of ethics provided that soccer officials were prohibited from accepting bribes or cash gifts and from otherwise abusing their positions for personal gain. The code of ethics further provided, from its inception, that soccer officials owed certain duties to FIFA and its confederations and member associations, including a duty of absolute loyalty. By 2009, the code of ethics explicitly recognized that FIFA officials stand in a fiduciary relationship to FIFA and its constituent confederations, member associations, leagues, and clubs."

Does this mean that FIFA officials really tried to root out corruption? Hardly. As mentioned in other parts of the indictment, the most recent accusations are not the first time that FIFA has been involved in allegations of corruption When met with these allegations in the past, FIFA either denied them or simply let a few officials take the fall only to be replace by others that simply continued to take part in the culture of wrongdoing. In this light, the "code of ethics" may have actually served to propagate corruption by creating the appearance that FIFA was intent on acting ethically when, in fact, its highest ranking officials maintained the same patterns of misconduct,

The lesson here for management is simple: codes of conduct are worthless without real actions aligning organizations to act ethically. More practically, codes of conduct should be viewed as foundational building blocks for driving ethical conduct in an organization. But that foundation requires driving training and other communications through the organization to ensure that what is written is actually reflected in a company's culture rather than, as in the case of FIFA, filed away and ignored.

#4: The Buck stops at the top

Ultimately, it is fair to ask how unethical conduct as widespread as the FIFA indictments suggest occurred could have been allowed to go on for so long?

Here, the answer points directly to the highest levels of FIFA's management. The 24 years of misconduct described in the DOJ indictment provided more than enough time for Sepp Blatter and other top officials to realize that FIFA was serving as a clearing house for bribes. It also provided more than enough time to institute real reforms aimed at protecting the integrity of the sport. Instead, the schemes described in the indictment persisted almost unchecked to the point that they became commonplace and even, as the Scientific American article aptly shows, "normal." Top FIFA management simply failed to do enough for the game they were entrusted to protect, and now management and the game itself is paying a heavy price.

In today's more scrutinizing environment, managers would do themselves and, more importantly, their businesses a service by reflecting on FIFA's failure to drive ethical behavior and to take effective compliance actions. For more on our recommendations for effective international compliance programs, see our related FCPA post here.and our Ethics and Compliance practice here.

For a PDF version of this document, click here,

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Andres Snaider is a founding partner of Nextant, a consulting firm specializing in assisting companies expand their businesses in international markets, with a strong focus on Latin America. With a degree in law and experience working as an international attorney and businessman, Andres has advised clients on a range of commercial matters and investments across the Americas. He is a graduate of the Harvard Law School and currently lives and works in Boulder, Colorado.

Email Andres at: asnaider@nextant.com

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