News 7th September 2015

FITS Forum: financial supervision, transparency & governance central

Financial supervision, transparency and good governance, with penalties for transgressors, are essential to the integrity of sport, heard delegates at the first day of the Financial Integrity & Transparency in Sport (FITS) Forum on 3 September. Football’s Financial Fair Play Regulations are reducing debt owed by clubs entering UEFA competitions, but delegates were warned that sport needs to stop hiding behind the ‘autonomy of sport’, a label which can be used to maintain the status quo and resist change.

Day one of the Geneva conference, organised by the International Centre for Sports Security (ICSS), focussed on the current landscape regarding corruption in sport. A key area of debate was whether sport could be trusted to maintain its autonomy and do more than pay ‘lip service’ to facilitate real change, or whether government and external stakeholders – such as the media, financial bodies, sponsors and fans – would need to drive change.

Governance & autonomy

Jens Seger Anderson of Play the Game felt that the ‘autonomy of sport’ was a dubious notion used to maintain the status quo in sport. Sir Ian Kennedy QC summed up the general feeling of the panel, stating “there comes a point when self-regulation becomes no regulation”. However, there was no consensus on the ideal level of governmental influence on sport. Some of the panelists preferring the public pressure approach to self-regulation in sport, while the alternative introduction of legislation and direct influence was also advocated.

“Sport needs a mechanism for transparency, which includes the publishing of data such as audit results; the earning and salaries of officials and members; the sources of funds; any conflicts of interests by officials holding positions in sports bodies and clubs; and a limit on the number of years for which a position in office can be held”, said Sir Ian Kennedy. However, in order for this to succeed, sport needs a worldwide agreement on standards of good governance and democracy, pointed out Lars-Christer Olsson, President of the Swedish football league (SFV).

However, the panelists felt that good structures alone are not sufficient to ensure good governance. Sport needs to monitor whether such structures are put in place, with penalties for those who fail to implement them, said panelists. Roland Büchel, a member of the Swiss Parliament, referred to the collapse of International Sport and Leisure (ISL), a Swiss company which was found to have paid substantial bribes to FIFA officials. Büchel said that despite owing over £150 million in debt, the bribed officials have yet to repay the money, and the company’s assets rather than being distributed to creditors, now belong to FIFA.

Money laundering

The third session discussed money laundering and the increasing risk of crime as sports deals with growing investment, and the role that financial institutions can play in preventing such crimes. Ruth Bailey, Head of Surveillance at Barclays, stated that a bank has finite resources and therefore when entering into relationships with sporting organisations, it was necessary to decide each customer based on the merits to ascertain the potential risk of money laundering.

In respect of the recent FIFA indictments, Bailey said that the monitoring of the risk presented by sporting organisations has always been on the banking agenda, but that regulatory and governmental sanctions made positive action by the banks a higher priority. In preventing financial corruption, she took the view that sport must also look to other industry gatekeepers, such as lawyers and accountants. Jane Lute, formerly of the US Department of Homeland Security, felt that whilst it was necessary for governments to criminalise commercial corruption, education within sporting organisations is also paramount, to ensure that officials understand their fiduciary duties. Her view was that advances in technology have made it easier for funds to be hidden, but these advances also mean that money can’t be moved without it being detected.

Swiss regulatory approach to international sport federations

Switzerland, as the host nation of the FITS Forum, was able to provide some insight into measures that can be taken in order to improve the financial governance of sport, as well as its regulatory processes. Switzerland is currently putting legislative changes through its Parliament, designed to close some of the loopholes that have allowed sporting federations located in Switzerland to abuse some of the freedoms they are offered. Part of these changes has been dubbed ‘lex FIFA’.

The changes designate sporting officials as Politically Exposed Persons (PEPs), which means that they now fall under the jurisdiction of criminal corruption laws and legislation that brings international sports organisations, of which over 60 are seated in Switzerland, within bribery and money laundering laws. Debating the new regulatory framework were members of Swiss Parliament, Carlo Sommaruga and Roland Büchel. Büchel was of the view that whilst the legislative changes may be appropriate for major sporting organisations such as FIFA and the International Olympic Committee (IOC), they were unfair for the smaller federations who were already starting to experience repercussions such as loss of investment and damage to bank relationships.

Conversely, Sommaruga opined that the law did not go far enough, and that it was necessary for Swiss prosecutors to have greater powers of investigation of corruption; the Government to regulate the separation of regulatory and commercial activity in sports organisations; and officials in sports bodies to be held to international standards and subjected to the same legislation as PLCs. Sarni Kanaa, Sport and Culture Councillor for Geneva explained the importance of educating young athletes about the risk of corruption in sport in order for them to make the right decisions.

Club ownership and structures

The forum shed light on the increasingly complex and opaque ownership structures of football clubs in the fifth panel. The panel agreed it was necessary for clubs and their governing bodies to determine the ‘beneficial owner’ of a club, who can often be hidden behind a ‘public-facing’ ownership structure.

“Organised crime is deeply entrenched in sport today”, said Chris Eaton of the ICSS, adding that in order to combat it, “sport needs to be regulated like proper business”. The key to tackling criminal infiltration in sports is for clubs to ensure they perform robust due diligence on who is the beneficial owner is and the corporate structure of any prospective buyer before entering any business or financial relationship, said Nicola Bonucci of the Organisation for Economic Co-operation & Development (OECD). She said that club management needs “real financial experts” to facilitate this. Claudias Schäfer, CEO of the SFV, pointed out that football is already more heavily regulated than other sports and if the requirement for due diligence is too high, this could become burdensome for clubs.

Financial supervision in sport

The final session of the day focussed on the results of new measures taken to increase transparency and accountability of finances in football. Leonard McCarthy, Vice President of the World Bank, felt that as a US$450 billion industry, sport clearly needs financial supervision and, if necessary, from a body outside of sport. His view was that in order for football to return to a AAA rating, it would need strong leadership. However, the Panel stressed that introduction of Financial Fair Play (FFP) rules has enhanced transparency and brought a new level of detailed financial reporting, encouraging clubs to better manage risk. Andrea Traverso of UEFA reported that in June 2011, clubs competing in UEFA competitions had a combined end of season debt of €57 million and that it is a huge achievement that as of June 2014, this figure has decreased to €5 million overdue.

Mark Goddard highlighted how FIFA’s Transfer Matching System (TMS) has helped to regulate football transfers and has transformed the industry. He pointed out that the data stakeholders can now obtain through the TMS helps to better regulate the financial aspect of player transfers in football. Goddard said that information within the TMS system helped bring to light FC Barcelona’s transfer of minor (U18) players, which resulted in a transfer ban sanction last year.

The panel also mentioned the role of agents and intermediaries in football, and the need for monitoring and transparency in this area given the public interest. A summary of day two of the FITS Forum is available by clicking here.

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