FIFA and the Corrosion of Financial Integrity

November 30th, 2010

The biggest sport in the world is football. Soccer, that is. Unfortunately, it also offers a paradigmatic example of the poisonous effects of a lack of financial integrity.

There are a great many people with a stake in the outcomes of football – for example, the World Cup held in South Africa earlier this year has verified viewing figures of 715 million women, men and children (around one in ten of the world’s population), having been broadcast in 214 countries. The sport’s world governing body FIFA estimate there were 26 billion World Cup match viewings – enough for each person on the planet to have seen three games and more.

Because of the interest of so many people, there is also a great deal of money in the game. This first World Cup to be held in Africa has been the most profitable of all time – for FIFA. The governing body made around $3.4 billion, tax free. South Africa, in contrast, incurred costs of around five times that. As the Tax Justice Network reported, the South Africa Revenue Service explained why their own revenues were never likely to cover these costs: “The concessions we had to give to FIFA are simply too overwhelming and demanding for us to have material monetary benefits.”

The concessions demanded were greater than those imposed on Germany as hosts in 2006, and FIFA now seems to have taken this further in the bidding to host the 2018 and 2022 World Cups, which will be decided at the end of this week. Specifically, FIFA have been demanding total tax exemptions (including e.g. sales taxes as well as profit taxes) for themselves and for “further parties” involved in hosting. In addition, the governing body has demanded that bidding nations keep the details of such concessions secret – there is a suggestion that the Dutch will be punished for not doing so.

If this sounds familiar to those who work on foreign investment in Africa, it should – the same pattern of demanding extraordinary concessions, protected by total secrecy, is systematic across the extractives sector in particular.

Yesterday, a BBC documentary revealed previously secret details of payments made to FIFA committee members by ISL, the defunct company which marketed the rights to the World Cup for FIFA until its collapse in 2001. The programme revealed a list of 175 secret payments, totalling about $100m, in many cases to opaque recipients in secrecy jurisdictions such as Liechtenstein.

The expectation is that the English bid to host the World Cup in 2018 may suffer because of this revelation, and that of an English paper last week that members of the FIFA committee had apparently solicited bribes on camera.

The English bid committee are angry at the ‘unpatriotic’ behaviour of the national media. Fans are divided between those who share this view, and those who think that it is demeaning to plea for the votes of FIFA members.

And this is the rub. In a given situation, in which individuals have great power and little transparency or accountability for their decisions, the absence of financial integrity creates a dilemma for the powerless below. On the one hand, there is a desire to keep one’s head down and simply operate within the existing system. On the other hand, there is a desire to change that system. All too often the former can outweigh the latter, and so the relatively powerless tend to go along with structures that lack integrity, rather than be the ones to challenge – even although that challenge would be for potential long-term benefit, it would very likely be at short-term cost.

The same dynamic can be seen with club football teams, for example, as in Christian Aid’s report looking at the British leagues earlier this year. When faced with a takeover of their club through opaque financial structures, fans have competing emotions – to hope for large sums of money that will raise their club to a new level, or to campaign for greater accountability because they have seen the damage that secrecy can do to clubs.

For women and men living in poverty, and faced with national structures that lack financial integrity, the same dynamic exists. If the biggest companies are known to be reducing their tax rates below those of even informal traders, and if elites (Links to Word Doc) are dodging tax, is it reasonable to expect individuals at the other end of the distribution to stand up and challenge, rather than trying to make their own way a little easier?

This is why tax compliance depends so strongly on perceptions of other’s compliance, and of the extent of redistribution. It is also why a lack of financial integrity is corrosive – because it undermines the sense of citizenship upon which communities rely, in favour of individualistic, amoral behaviour that is ultimately destructive.

For most businesses, and for most people, the long-term benefits of financial integrity are certain. The problem, in football as elsewhere, is that it is easy to take the path of apparent short-term benefit. And if everyone does the same, we all end up worse off. The work of civil society organisations that stand up to corruption, from The Corner House in the UK to Tax Justice Network-Africa, or Civicus supporting civil society around the world, is crucial. The work of the Task Force in pushing for the integrity measures that will change the dynamic in the long term is also of paramount importance.

Written by Alex Cobham

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