Thomas Murray - The Lynch mob – banking, FIFA and corruption

The Lynch mob – banking, FIFA and corruption

“They used their positions to solicit bribes,” said US Attorney General, Loretta Lynch upon the arrest of 14 FIFA officials. “They did this over and over, year after year, tournament after tournament. They were expected to uphold the rules that keep soccer honest. Instead they corrupted the business of worldwide soccer to serve their interests and enrich themselves.”

“The penalty these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct,” said US Attorney General, Loretta Lynch upon fining six banks $5.6 billion for FX market rigging. “It is commensurate with the pervasive harm done. And it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare.”

The tales of bribery, embezzlement and rigging of World Cup venues in the corridors of power in football have been doing the rounds for years. The news that senior officials have been arrested by the FBI caused a flurry of headlines, followed by outrage. One thing that was missing, however, was surprise. That these events should unfold was as surprising as the sun rising in the morning.

FIFA has long been perceived as a rotten organisation; a soulless, morally bankrupt, corrupt cesspit. It has globalised football in return for cold, hard cash. Each World Cup, the sport’s showpiece, brings in revenues in excess of $2 billion. These revenues fund plush headquarters in Zurich, fly executives around the world and help keep the votes rolling in for the man who controls this not-for-profit organisation, Sepp Blatter.

Even for an organisation whose of corruption was an open secret for years, the award of the 2022 World Cup to Qatar shocked even the most hardened of cynics, since the carbon-rich Arab principality had nothing to offer football except money. To adapt Talleyrand, for FIFA officials the Qatari deal was worse than a crime: it was a blunder.

Individuals were indicted even before the latest round of arrests. João Havelange, president of FIFA before Blatter, was recently stripped of his honorary presidency for dodgy dealings in the 1990s – a $100 million bribery case involving the now defunct marketing company ISL, which paid out the bribes to Havelange in return for rights to FIFA events. In the report, finally issued in 2013, Havelange was described as “morally and ethically reproachable.”

Jack Warner, once a FIFA vice-president and president of CONCACAF, the governing body for football in the Caribbean and North America, resigned as evidence emerged that he had enabled one time FIFA presidential candidate, Mohammad bin Hamman, a Qatari, to pass round vast wads of cash to CONCACAF delegates and presidents in return for votes in the run up to the election of the 2022 World Cup host. Blatter did not pursue any further line of investigation against Warner since he had resigned when the allegations became public. Case closed, apparently.

It is no surprise to see Warner’s name being brought up once more in connection with the darkest side of The Beautiful Game. He had previously survived numerous scandals, including the receipt of 2002 World Cup tickets that were intended for his members, which he instead sold for large sums of money through his own travel agency. He’s a man whose name is inextricably and consistently linked to corruption.

There are numerous examples of corruption within FIFA, but it is clear that money has been the root of all evil, with FIFA’s members willingly accepting of the Faustian Pact of redevelopment, investment and increased authority, in return for corrupt governance. This has been FIFA’s modus operandi – to take the money of the wealthy footballing nations and distribute it amongst an empowered base of poorer nations. Every member has an equal vote within FIFA, so the nations of Africa and Asia, staunchly pro-Blatter footballing regions, have been happy to vote for the incumbent and keep the money coming in. This is why Blatter has become so all-powerful; he has made an excellent politician.

Why are we discussing FIFA’s scandal here, though? Let’s return to the epithets we used to characterise the organisation; corrupt, embezzlement, rigging, soulless, morally bankrupt cesspit. This description is equally applicable to banks.

Only a week before the FIFA scandal erupted, Bank of America, UBS, RBS, J.P. Morgan, Citigroup and Barclays were, between them, fined $5.6 billion for the rigging of foreign exchange markets. As with FIFA, a flurry of headlines were followed by expressions of outrage. And, again as with FIFA, the one thing that was missing was a sense of surprise.

There was no surprise because the banks, like FIFA, had been in the dock before over remarkably similar charges. The banks had been fined for rigging interbank lending rates previously; this time they were rigging FX markets for their own gain. Everyone was embarrassed and apologetic the first time around.

Then chairman of Barclays, Marcus Agius said; “We are truly sorry for what has happened. It is our actions now over the coming months and years that will make the difference.” Three years later and Barclays was handing out $2.32 billion in fines for further misdemeanours. What was learned from the original rigging scandal? Sweet (FI)FA.

J.P. Morgan, Citigroup, Bank of America and UBS were also mentioned in the case against the FIFA officials on the money laundering side of the charges, bringing further connection and embarrassment between the two scandals. The protagonists in both tales thought themselves above the law. The traders at the banks called themselves ‘The Cartel’ and ‘The Mafia’ in internet chat rooms. One Barclays employee remarked, “If you ain’t cheating, you ain’t trying.”

There are remarkable parallels between FIFA and the banks. Power, leading to avarice, leading to corruption. Marry that to a dangerous lack of transparency and accountability. For football to move forward, it can learn a lot of from the high profile embarrassment of the banks.

FX market rigging fines by bank

The banks have been fined $5.6 billion in the recent round of fines for market rigging (see table, source: FT.com). Those are headline grabbing figures. 5.6 billion is a huge number. But what does it represent? Why was this particular figure arrived at? And, perhaps most importantly, what has happened to all that money? The same questions linger over the interbank lending rate fines of three years ago. It is quite reasonable to argue that these are merely headline grabbing numbers, chiming with a public rhetoric of ‘banker bashing’ that really show that financial regulators are serious about tackling fraud and corruption in our financial systems.

Financial regulators are in situ to protect the real economy; taxpayers and everyday investors. This was something they had failed to do before the 2008 financial crisis. This time it will be different – or so says the thick end of $19 billion in cumulative fines that have been handed out thus far on the back of the crisis.

Given the role of the regulators, there appears to be a lack of transparency and accountability even at this level, in policing an industry that affects everyone. Will the money from the FX rate rigging fines make its way back into the pockets of those who have lost out whilst transferring money abroad via these banks? The answer is no.

It is also unclear as to what $5.6 billion in this case really means. Is it even sufficient? It’s a big number, but is it big enough? Is it too big? Is it, as Loretta Lynch, who has had a say on both FIFA and the banks, said, commensurate with the crime and a sufficient deterrent to future egregious behaviour? There is no public knowledge of the methodology behind arriving at these headline numbers. People know what is going on at FIFA, the public understands the story. Yet FIFA has no role in protecting or governing the public. Financial regulators do. The public knows more about football than it does finance, the only familiarity between the two being the perception that that they are governed and run by bad and corrupt people. There is an image problem that financial regulators have singularly failed to tackle.

Transparency and accountability are buzzwords of the moment; everyone wants to be seen to be clean. FIFA should, therefore, learn from the mistakes of the financial regulators and be transparent and accountable as it begins the process of cleansing itself and the image of the world’s most popular sport. Otherwise football, too, will have a lingering image problem.