Money laundering describes a process whereby illegal money is put through a cycle of transactions so that it can come out the other end as appearing to be legal money. This effectively means that the source of the illegally obtained funds is obscured through a succession of transfers and deals in order that those same funds can eventually be made to appear as legitimate income.
During the summer of 2009 there was a huge scandal involving money laundering in cricket which lead to the arrest of a prominent investor in the cricketing world.
Many feel that other sports such as football due to the large sums of money passing through the hands of individual clubs, players and agents has huge potential for money laundering.
Accordingly the Financial Action Task Force (FATF) has issued a report concerned with money laundering in football.
The Financial Action Task Force is an inter-governmental body whose purpose is to develop and promote policies at an international and national level to combat money laundering and terrorist activity.
The FATF was established by a G-7 Summit held in Paris in 1989, with the cooperation of the European Commission and eight other countries.
Currently membership of the FATF consists of 31 international countries.
In Europe the FATF works alongside the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) as well as the Council of Europe being a member of FATF.
Football as a sport in the UK is said to be extremely susceptible to money laundering due to the following factors:
The complex nature of the relationships and the many stake holders
The diversity of legal structures for football clubs
The lack of regulation for the ownership of football clubs
The volume of money involved with the sport
Within the sport there is a very complex nature of the relationships between the many stakeholders. They are as follows:
The corporate sponsors
The individual club patrons
Local business clubs
The structure of football clubs can vary from private limited companies to foundations meaning that there is no consistency and as a consequence they are fairly easy to acquire.
The fit and proper test has come in for criticism as there has been little opposition in relation to the vast amounts of ownership from outside the UK infiltrating into the FA Premier League.
One of the issues identified in the FATF report is that despite their being huge amounts of money involved in the sport many of the clubs are in extremely fragile financial positions meaning that they may be susceptible to money laundering.
The FATF report identified three specific areas in which money laundering can happen in football. They are as follows:
Transfer of ownership of football clubs
The transfer market and the ownership of players
Image rights, sponsorship and advertising agreements
The FATF report identifies the scenario whereby payments are made to a particular club suffering a deficit as having large potential for money laundering.
At the end of a football season a club is often in deficit. This deficit is often offset by large companies coming at the end of the season from an individual contributor. Often these payments will be made through a variety of layer companies with the individual contributor actually being the owner of the club.
As no compensation was agreed and this was done to the prejudice of the companies the FATF clearly felt that this was a clear example of money laundering.
The FATF recommends that when accountants undertake the audit of a club particular attention must be paid to potential anomalies arising out of the financing of deficits.
The FATF report takes issue with the transfer of players between football clubs and in particular the large sums of money passing through different parties. Often the commission paid to an agent can look like an illegal payment which many feel can lead to problems of money laundering.
The FATF report identifies money laundering issues in the following scenarios:
Unknown or anonymous investors
Collective Investment Funds (CIF) located offshore
Money transfers to a club for a player acquired through a third party –
Allocation of funds for purchase of players
The FATF report identifies the scenario of fictitious image rights, sponsorship and advertising agreements are put in place to avoid paying a particular player through a salary mechanism.
This can create the possibility for both money laundering and tax evasion.
Nicola is a dual qualified journalist and non-practising solicitor. She is a legal journalist, editor and author with more than 20 years' experience writing about the law.
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