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Money laundering is not complicated, you just need a cash generating business. Football is a cash generating business.

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Money laundering is not complicated, you just need a cash generating business.Β  Football is a cash generating business.

By: Anne

The Financial Action Task Force (FATF) describes itself as “an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering and terrorist financing.”

In July of 2009, the FATF released a detailed reportΒ titled “Money Laundering Through the Football Sector,” in which they identified many “vulnerabilities” that make the football sector uniquely attractive to criminals looking to launder money.

According to the FATF, football clubs “are indeed seen by criminals as the perfect vehicles for money laundering.”

Basically, the main reason for this is because there is a lack of transparency in football regarding the origin of funds invested in clubs (including player transfers). This makes it difficult for anyone to verify exactly where the invested money came from.

As a result of this (as the FATF puts it), “suspicions of the influx of dirty money into football through these ‘sugar daddy’ investments are hard to prove.”

In other words, if you launder your dirty money through a football club, it is very difficult to prove that you are laundering dirty money. This naturally makes football club ownership quite appealing to many, if not most, criminal elements who are looking to sweep some “suspect” cash under the rug.

Getting into specifics, the FATF report identified four primary areas in which football is particularly vulnerable to money laundering. These are:

1) Ownership of clubs

2) The transfer market and ownership of players

3) Betting activities; and

4) Β Image rights and sponsorship or advertising arrangements

Our series on this subject will focus primarily on money laundering through the transfer market. However, before we get into that, I thought we should start with something more basic; namely:

What is money laundering, exactly?

Contrary to popular belief, money laundering is not complicated. At least, not in essence. Don’t believe me? Allow me to explain with the following simple example.

Say that you are a wealthy individual who has acquired your wealth by running a highly profitable narcotics trafficking business. Naturally, you want to use your ill-gotten wealth to “live the good life,” with all the cars, women, social prestige, etc. that “living the good life” usually entails.

However, there is one thing standing in your way; namely, the likelihood that someone, somewhere, at some point, will probably ask you where your money came from. And on such an occasion, there would be a certain awkwardness in replying:

“I’m an international drug kingpin.”

Aside from being awkward in social situations, the above response could prove particularly problematic if the person asking happens to be the taxman, given that you did not pay taxes on any of your criminal earnings. So, how to solve this problem?

Being the diabolical criminal genius that you are, you decide that you’re simply going to lie and say that you got your money somewhere else. For example, from your highly successful chain of restaurants. So, you start some restaurants.

Say that, in a single month, you earn $1,000 from your restaurants, and $15,000 from narcotics trafficking. But when you’re keeping the books for your restaurants, you lie and write that your restaurants earned the entire $16,000. That way, you can lie to everyone else as well, and say that you earned all of your money from the restaurants.

And that’s money laundering. In essence, money laundering is never more complicated than what I just described above. The way it becomes complicated is when you’re trying to move really large sums of money, and you have to move the money through more and more locations and transactions.

However, in any kind of money laundering, you’re basically just putting your dirty money through the quintessential “wash cycle.” You send it out dirty, it comes back clean.

From there, let’s move into a simple example of how money laundering could work in football.The example I used above describes money laundering in it’s most simple form. The reason I used restaurants in my example is because restaurants are “high cash flow businesses.”

You may have heard the term “high cash flow business” in conjunction with money laundering before. And the reason for that is because any “high cash flow business” is highly vulnerable to money laundering. Why? The reason is, again, very simple.

If, as in the example above, you write in your books that your business earned $16,000, when it actually earned only $1,000, that’s not going to do you much good if there are still a bunch of bank records out there showing that your business really earned only $1,000. However, because a restaurant receives a huge portion of it’s proceeds in cash, there are no records out there proving that your business earned anything other than what you said it did.

So, basically, as long as the money is coming in in cash, the authorities can’t prove that you’re lying about where you got it.

Moving onto football… According to the FATF report, 35% of all revenue in English football is “matchday revenue.” In other words, it comes from ticket sales, refreshments, etc. And what is one defining characteristic of this type of revenue? (Hint: “high cash flow” would be a good guess here). Or, as the FATF report puts it:

“Cash received from ticket sales for football matches may be open to manipulation in order to launder funds by falsifying the books of a football club. A football club would…not be different from other cash-generating businesses outside the football area, such as restaurants, bars etc….”

(But just think how much money you could claim that you earned from matchday revenues at a football club, as opposed to a measly little restaurant!)

The above example is just one of many ways that the football sector is vulnerable to money laundering, and it is far from the area of highest vulnerability. However, it does provide a good basic introduction to the topic of money laundering in football.

______________________

 

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52 comments to Money laundering is not complicated, you just need a cash generating business. Football is a cash generating business.

  • WalterBroeckx

    Very interesting Anne.
    And I was wondering if this would be the reason that in almost any German club I have been in the past you can only buy your drinks with a “club card”.
    I think we can agree that German Bundesliga clubs are the best runned in the world because of the strict way they are controlled by the governement and the DFB (German FA that is).
    Their shares are mostly owned by supporters or their organisations and they wouldn’t want to have such persons hanging around to have their dirty money laundered at the club they love. So by getting this card which you can load money on from your bank account or card you have less cash flow coming in in real cash.

    In fact the only place where you can pay in euro’s in a German stadium is at the visistors end where they accept cash because they know that people who only come once in a year cannot be expected to buy a club card (from another club)

  • Goonerbeall

    I used to love reading your articles but now I think you are paid guys who come on here to placate us. We are angry that our team has gone to the dogs. Taken apart by some tinpot club in the Welsh valleys yesterday a week before meeting Manure who thumped us properly in thr Autums aint a good time to tell us some sweet stuff. Add on the fact that our manager thinks we are fine squad wise when he plays CB as FB and DM as CB and upfront we are using aa guy who is old and carrying timber is not a time to come with sweet talk.

  • @Goonerbeall – we wish!

  • Johnny Deigh

    I have a hard time believing that a 30 year old orphan came up with the money to buy half of Russia’s oil by selling cheap junkets in a flea market.

  • Johnny Deigh

    Sorry I misused the word junkets – I meant trinkets or junk.

  • Arun

    @Johnny, who are you talking about ???
    I will not be surprised if any football club is found involved in money laundering considering the way football clubs in England are run.Recently, Bayern played a friendly in India and one of them (don’t remember who) criticized FA for failing to control its clubs and their spending.In my opinion, FA has continued to make money themselves and relaxed the restrictions on clubs in order to reach all parts of the world including lifting limitations on foreign players in a team reducing the chances of their young players to get a game and the final result :Humiliation suffered by the national team during various tournaments (euro 2012 is gonna be next).

  • Johnny Deigh

    There is this Russian orphan and when he was 30 years old, Russia privatized its natural resources and he came up with $300 million or so and bought a large portion of Russia’s oil industry. He claims that he got the money by selling stuff in flea markets. Currently he owns of a big football club in London.

  • Ugandan Goon

    it used to be the FA’s job to run a fit and proper persons test for anyone looking to buy a club, as the Craig whyte and the Vladimir antonov debacle at portsmouth have shown, they dont and i don’t think they ever have.
    take a look at this, i must stress that i am not accusing anybody of anything, but just including this to support Anne’s position that a high cashflow business can be attractive to all sorts of people for all sorts of reasons. HA!

  • Sammy The Snake

    That London club owner is very fishy. He has no real interest in football, just wantsbto wash a few billions with a few hundred million invested in his club. I heard he can’t even return to Russia, is that true!?

  • Anne

    @Goonerbeall:

    Did reading about money laundering in football make you feel “placated?” If so, you must be quite a piece of work πŸ™‚

  • Anne

    @Walter:

    That’s really very interesting about the Bundesliga. I must admit that I don’t know much at all about how German clubs are run, but it does seem that that would cut down on the possibility for some types of money laundering.

  • Anne

    @Johnny Deigh:

    It’s an inspiring rags to riches story, isn’t it? πŸ™‚

  • Anne

    @Ugandan Goon:

    Very interesting link there. Thank you.

  • Philbet

    Goonerbeall and his like, never go away they just sulk in the shadows then appear as soon as a couple of results go against Arsenal,they know more than the manager,board,players and tea lady’s, they cant spell or articulate a sentance yet still feel qualified to tell millionaires and successfull business men where they are wrong and where they should spend there money.
    Fancy a football manager having to play a centreback at full back surely anyone could have foreseen a full back crisis and filled the squad with top class Fb’s on big money and suited to sitting on the bench unless called on,the sad thing is he will think he does know better, someone tell him its a lot easier from infront of the TV.

  • Anne

    @Sammy the Snake:

    πŸ™‚

  • Anne

    @Arun:

    It’s actually the FA’s failure to control the spending of clubs that makes them most vulnerable to money laundering, in my opinion. Because you can’t launder money through the transfer market if you aren’t “splashing the big cash.”

    It kind of makes you wonder about the motives of all of these people who seem so intent on pressuring Arsenal into doing just that, doesn’t it?

  • bjtgooner

    Anne this is an excellent article, very interesting and also educational for those of us who are innocent in such manoeuvres.

    I would imagine that any super rich person taking over a club to use it for laundering would require an equally dishonest set of accountants – so a change of accountants/auditors after a takeover may indicate a possible reason for the takeover.

    @Ugandan Goon
    I agree, the FA seem to be failing in their duty in regard to a fit and proper persons test for would be club owners – but are the FA themselves competent to conduct such a test? I would like to think the answer is yes, but I am not confident!

  • Anne

    @All:

    I just received some criticism through email that this article reads as if it was written for children, and that it doesn’t go into nearly enough depth or explain enough.

    I want to clarify that my intent here was not to treat anyone like a child. It just occurred to me, as I was working on all this, that people who don’t have any background in finance might not know exactly what money laundering is.

    Because in the media, while you often hear mention of “money laundering,” you don’t ever get any information on how it is done or how it works (I think this is deliberate, personally).

    So, if you didn’t need this article, or it is below your level, sorry. I promise that, as the series continues, it will get more complicated πŸ™‚

  • Anne

    @bjtgooner:

    Glad you liked the article. More to come. And yes, when you’re trying to launder money in the millions and billions, you need the assistance of all sorts of corrupt people, accountants and lawyers just being the starting point πŸ™‚

  • DC

    Nice intro to this topic Anne!
    It fascinates me how the FA is permitted to run the game when so many football clubs that have been the cornerstone of so many working-class communities are allowed to go into administration or to disappear into oblivion entirely without any blame ever being levelled solely at them?!
    The “fit-and-proper” test is farcical and when the Chairman of the EPL, Scudemore, categorically states that the EPL is devoid of financial criminality (due to the highly clever and sophisticated network of monitoring they have with the bookies, etc) you know it’s bulls**t and only a matter of time before it’s exposed…..and i really can’t wait!!
    Does anyone know if any non-nationals own clubs anywhere else in Europe’s top leagues? I can’t seem to think of any off the top of my head? And if not, why would that be I wonder?!

  • Anne

    @DC:

    Off the top of my head, I know that arab investors recently took over Getafe and Malaga in La Liga. However, this isn’t necessarily something that only occurs with regard to foreign owners.

    Italy has huge problems with this because there is such a large organized crime presence within the country (the same would be true for a lot of Eastern European leagues, particularly any existing within the former Soviet Union).

    For an example, check out this article:

    Seven held after ‘mafia attempt’ to buy Italian football club Lazio

    http://www.guardian.co.uk/world/2008/jul/23/italy.internationalcrime

  • Mandy dodd

    I know italy well. I love the country and the vast majority of the people i have been aquainted with there,but , nothing, I repeat nothing of any substance is completely free of corruption. There are some very brave people who are trying to fight it. As we know the football clubs have been in the thick of the various forms of corruption, which I believe is now Italy’s biggest business?
    We are not Italy but in the open gambling market and money laundering haven that we could well be, no room for complacency. I hope this club are extremely careful over any current and possible future would be owners, we all know what they say about short term gain……

  • Anne

    @Mandy Dodd:

    The “money laundering haven that we could well be.” Hm… πŸ™‚

    Way back in 2000, the FA took note of the following:

    THE Football Association and the National Criminal Intelligence Service (NCIS) are setting up a special squad of investigators to combat international money launderers who are attempting to buy stakes in soccer clubs.

    NCIS is aware of syndicates planning to move large sums in cash to invest in often desperately broke clubs……

    An FA spokesman said: “We are concerned about the possibility of money laundering.”

    http://www.telegraph.co.uk/news/uknews/1348732/Squad-to-target-drug-money-in-football-clubs.html

    That was 12 years ago… In the intervening years, can you recall any news reports about the FA successfully stopping this coming influx of dirty money? πŸ™‚

  • Mandy dodd

    Cannot recall any such thing. Just a number of strange new owners from all corners of the globe with a lot of money who seem to have very little appreciation of football.
    I would be interested to know who some agents operating here are linked to, I know of at least one allegedly in contact with some quite frightening people,

    http://www.thesun.co.uk/sol/homepage/sport/football/3189791/How-Paul-Stretford-has-made-a-fortune-from-Wayne-Rooney-and-wife-Coleen.html

    Mind you , maybe the sun is not the best source to quote

  • Anne

    @Mandy Dodd:

    Thanks for the link. Football agents are actually going to feature heavily in this series as we move on.

  • DC

    @Anne,
    Thanks for the link!
    It’s all very gloomy and I do not see how It cannot already be present throughout British football and the EPL in particular?! Agents are well and truly modern day pimps!!!
    I’ve just recalled that AS Monaco was also recently bought by a Russian “Flea-Market Trinket seller”! European football is now a ticking financial time bomb! The Bundesliga must be massively respected and credited for it’s achievement to-date but how long can it realistically resist if this is now becoming so ubiquitous with no legislation or heavy deterrents?!

  • Kentetsu

    Anne, despite what somebody in an email may have said to you, I commend you for this introduction. The best way to explain things is to relate to something else people are familiar with, in this case the cash flow of a restaurant. Incidentally, I had been reading a lot about the how and what of money laundering lately, led on by previous articles on Untold.
    I am looking forward to your next articles. And please feel free to dig more into the world of club ownership, betting activities, and image rights and sponsorships as well. Player transfers may be where money laundering is most eminent – with the huge amounts of money going around, the whole circus taking place twice a year, cross-border money flows, (shady) agent fees, etc. – but perhaps you can merge the other three points in one article. If you still have time, that is. The amount of research you put into this must be tremendous.
    All the work you put into it is much appreciated!

  • Anne

    @DC:

    If I thought there was no hope for saving football, I wouldn’t be devoting so much of my unpaid time to writing articles for this blog. As I’ve said in previous comments threads:

    “It’s in the best interest of cockroaches to keep the lights off. It’s a hell of a lot easier to hide…”

  • Tay

    great article

  • Anne

    @Kentetsu:

    I’m glad that you appreciated the article, and I’m even more glad that you’ve been looking into money laundering on your own πŸ™‚

    The primary reason I’m focusing on the transfer market here is because the general subject is so vast that I can’t fully cover it on my own. However, I did link to the initial FATF report in this article. If you’re interested in looking into these larger topics, they’re all in there.

    Also, you’ll see that many of these “categories” tie together in a lot of ways.

  • Anne

    @Tay:

    Glad you like it. Hope you continue to follow the series.

  • Charlie

    This website now prints nothing but conspiracy theories and while I agree that there may be corruption in football isn’t it time to talk about football. Match fixing isn’t the reason why this Arsenal team aren’t winning, lack of quality is the reason we were totally outplayed by Swansea.

  • Anne

    @Charlie:

    Lol. Are you sure you’re not relying just a bit too heavily on that one Swansea loss? After all, Arsenal fans have noticed that Arsenal has, generally, played pretty good football for the most part this year πŸ™‚

  • Anne

    @Charlie:

    And are you sure that match fixing wasn’t the reason, even with regard to Swansea?

  • Brickfields Gunners

    Nice article Anne , do keep it up as its very informative and needless to say eye-opening .Ignore the nay sayers – they may have other motives .
    Thanks guys for the interesting links and constructive comments .

  • Anne

    @Brickfields:

    Thanks. I hope you continue to enjoy the rest of this series.

  • Kentetsu

    @Charlie:
    Untold Arsenal is exactly about this kind of articles. The exact topics – relating to football in general and Arsenal in particular – that are left untold by every other media (TV, newspaper, news site, blog, etc.) out there.
    If you do not like to read about articles not directly relating to the most recent/next upcoming match, there are other articles on Untold that cover that.

  • Kentetsu

    @Anne:
    I will read the FATF report. Not much to do at work anyway.

  • Anne

    @Kentetsu:

    The FATF report is obtuse in a lot of ways, and while it gives you a basic breakdown of money laundering in football, it doesn’t fully explain it. If you do look at it, please feel free to ask me any questions that you might have. If you want to email me personally, that’s absolutely fine. I would like to hear from you. You can find my email address on this site.

  • Kentetsu

    My first impression is that the report is lacking in depth. If you know a bit about money laundering and have a good dose of common sense then you can come up with most forms of money laundering they mention. In particular in a business where there is no fixed value for say a football club, a football player, or his image rights, it is very easy to cook up some figures. The report did touch upon this point, but I think this is one of the most important factors to look deeper into, in particular regarding player transfers. Am I right, Anne?

    Another point is that they seem to have all the answers already to combat money laundering; all kinds of prevention systems are in place, etc. Yet the concern is still evident. For example club or player ownership by a company registered at a tax haven is a pressing concern that has to be dealt with.

    A final point I’d like to make for now is that they seem to be terribly naive. Take this quotes for example:
    “One of the objectives of FIFA is prevention of practices that might jeopardise integrity of the sport.”
    The report pretends that the FIFA (or any other FA) stands above this and is the cure rather than the disease. But what if the FIFA itself is corrupt?
    Also, the following quote is laughable:
    “Appointing somebody within the club’s senior management to be responsible for money laundering issues.”
    Mind you, this is a suggestion to combat money laundering. How about the clubs that already have somebody ‘responsible for money laundering issues,’ but to facilitate money laundering?

  • Kentetsu

    Interesting point about some of the countries that did not partake in the survey. Two of the big five EU competitions were absent: Germany and Spain. But since it was not an FA that had to fill out the questionnaire, maybe I shouldn’t think to much of it.
    However, definitely interesting to note is that both England and Italy have not implemented FIFA’s player matching transfer systems. At least not at the time of writing the report (July 2009). Any thoughts on this?

  • Gary

    Anne,
    Your example with restaurants is not a good one. Only an extremely stupid billioners (and they are not) will do such a thing. Remember that as soon you declare an income, you have to pay tax. Big money will be taxed at 50% up. Bad business. The cost of laundering money is 10-15% the most and football clubs are not good to do that. Big financial institutions including well known banks will do it much cheaper on a big volume.
    In Germany the club card is to collect taxes, not to prevent laundering money.
    I find the article very naive.

  • Rhys Jaggar

    The Chelsea owner made a lot of his money doing what most people in IBanks in London do: trading commodities.

    Basically, he sold oil and gas at international prices having bought it at Russian prices.

    Hat tip, the difference was quite big!

    Documented stories say that Β£1m per phone call was not unexpected…….

    Clearly, you could easily make 300 phone calls in 5 years……..

    The other thing to bear in mind is that most oligarchs who bought state assets ‘on the cheap’ could only borrow money from the Russian mafia. If they missed an interest payment, they didn’t get a nasty letter, they got a bullet. So the terms and conditions of the loans were quite stringent……..

    The story you might like to look into though is how cocaine dealers managed to turn cocaine resin into dolls………..

  • bob

    Kentetsu,
    What does “FIFA’s player matching transfer systems” mean? Please define that. Cheers.

  • Kentetsu

    @bob:

    To directly quote from the FATF report:

    “The transfer matching system is a web based system for data exchange operated by a legal entity owned by FIFA. Applicable to international transfers of professionals, the system is firstly a contract matching system to ensure that all parties agree on the details of the transfer, secondly a contract validation system to ensure that the terms of a transfer are correct and thirdly a payment recording (settlement) system. The advantages are twofold: it facilitates transfers and shows where the money is coming from and going to, with the aim of making transfers more transparent.”

  • Anne

    @bob, kentetsu, all:

    As I said on my thread for the second article of this series, I’m having some minor tech difficulties right now, so won’t be able to follow up on comments until tomorrow (probably), when I can get it sorted. But I will get back to you on this. Cheers.

  • Anne

    @Gary:

    So, it’s “naive” to suggest that football clubs might be involved in money laundering? Some might suggest that it’s “naive” to say otherwise.

  • jitty

    @ Gary

    What tax is paid?

    The clubs are making losses and the offshore owners operate via tax shelters

  • Anne

    @Jitty:

    Lol. Good point. If you declare a financial loss, there are certainly no taxes to be paid from that πŸ™‚

  • Ahmed Awaan

    anne
    good explanation of a point which is not very clear to every body.
    cant find any new part of the series except the second one.
    waiting for the next one…….

  • Shametothieves

    Your article was at least illuminating. I want to add a simplified case of laundering money, the case of shipowners in Greece were in the middle of the crises in 2008, the biggest clubs of the country fell to Greek shipowners hands. It is now clear to me how the Greek Fat Shipowner’s money from the tax avoidance shipping industry from Greece was made, combining flags of conveniance and football business and now are clean and dried. Hopefully some day somebody will not let the same shipowner’s kids steal from the Greek people. It is a familly business after all. Dirty families indeed.