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Part one of this article is available here.
Money laundering through the transfer market is slightly more complicated than the activities described in the first article. According to the FATF, one of the main ways that money laundering occurs in the transfer market is through the “over-evaluation of a player.”
Or, in other words, by transferring a player for more money than the player is actually worth. As the FATF puts it:
“The over-evaluation of a player corresponds to a money laundering technique similar to the over-invoicing of goods and services seen in trade-based money laundering. The key element of this technique is the misrepresentation of the price of the good or service in order to transfer additional value.”
The following hypothetical scenario provides just one example of the many ways in which this could occur, and is based on a similar hypothetical scenario that appeared in the FATF report:
Mr. Kingpin is a high profile global “entrepreneur” who has $1 million worth of dirty money to launder. He decides to launder this money through a football club.
To accomplish this, Mr. Kingpin first needs to acquire some type of ownership interest in a football club. He thus uses $500,000 of his dirty money (half of the $1,000,000 total) to purchase a large number of shares in football club “Unfortunate FC” on the stock market. This makes Mr. Kingpin the majority shareholder in Unfortunate FC.
Mr. Kingpin’s purchase is accompanied by much media fanfare about how Mr. Kingpin plans to act as a “sugar daddy,” and pour loads of money into the “highly fortunate” Unfortunate FC. Accordingly, the first thing Mr. Kingpin does is dump the other $500,000 of his dirty money into Unfortunate FC. However, he does this in the form of a loan to the Club, not a “gift.”
At this point, Step 1 of the money laundering process is complete. Mr. Kingpin’s $1 million of dirty money has been fully invested in Unfortunate FC. However, unfortunately for the Club, Mr. Kingpin has every intention of getting his $1 million back, nice and clean.
Mr. Kingpin’s first step in getting his money back is to make sure that Unfortunate FC earns some money of its own. He does this by arranging for a bunch of new shares in the Club’s stock to be released for sale onto the stock market. Because of Mr. Kingpin’s involvement in the club, and the accompanying media hype, the value of the Club’s stock goes way up. There is high demand for the new shares that have been issued, and Unfortunate FC earns a lot of money from people buying the new shares.
Mr. Kingpin then uses $500,000 of the Club’s newly-earned money to repay the $500,000 loan that he initially made to the Club, thus getting half of his dirty money back.
To get the other half back, Mr. Kingpin jumps into the transfer market and, as promised, starts to “splash big cash” by buying players for hugely exorbitant fees. However, it is important to note here that the fees for these transfers are paid with Unfortunate FC’s new money, and not Mr. Kingpin’s.
Also, Mr. Kingpin is actually using some shady dealings and accomplices to make sure that a huge portion of the money that the Club is spending on players is actually coming straight back to him.
Specifically, Mr. Kingpin arranges for the Club to negotiate these player transfers through an “agent.” However, this “agent” is actually nothing more than an offshore company that is working as Mr. Kingpin’s accomplice. Mr. Kingpin’s other accomplice is the selling club, which, as part of the transfer deal, agrees to pay a secret “commission” to Unfortunate FC’s “agent.” This “commission” is built into the exorbitant transfer fees that the Unfortunate FC is already paying in the first place.
This is how it works. Say that Unfortunate FC, at Mr. Kingpin’s direction, agrees to buy a player for $50,000. But as part of the deal, Unfortunate FC’s “agent” (Mr. Kingpin’s accomplice) is secretly earning a $25,000 “commission.” The selling club will pay this “commission” out of the $50,000 that it receives for the transfer.
What this means is that, in effect, Unfortunate FC is paying only $25,000 for the player, and an additional $25,000 to its “agent,” which then transfers the $25,000 into an offshore account controlled by Mr. Kingpin. In the end, the Club has paid $25,000 for the player, and $25,000 to Mr. Kingpin.
Eventually, Mr. Kingpin earns $500,000 from these player transfers, which means that he now has back the $500,000 that he used to purchase his shares in Unfortunate FC in the first place. At this point, the money laundering cycle is complete, and the $1,000,000 of dirty money is now back in Mr. Kingpin’s control.
(You may notice that, in the process, Mr. Kingpin, far from being a “sugar daddy,” is actually robbing Unfortunate FC blind).
On top of that, Mr. Kingpin now owns a bunch of stock in the Club at no cost to himself, and has earned a profit because his shares went up in value. Furthermore, he can continue to use the transfer market to launder his dirty money until it is no longer profitable for him (in this case, that would likely occur at the point when “Unfortunate FC” turns into “Bankrupt FC.”)
The above is just one hypothetical example provided by the FATF of how money laundering in the transfer market could occur through the over-evaluation of a player.
Now that we have the basics covered, in the next article in this series we will examine the topic in much greater detail.