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Abstract This paper is a systematic literature review of existing research concerning the strategies involved in countering fraud and corruption in the funding of English football clubs and draw on, where relevant, with the financial services industry sector’s strategies that are engaged in preventing money laundering. The definitions of fraud and corruption are be critically explored. Central focus will be on the difficulties in understanding corruption, exploring different interpretations of its subjective nature and then applying a definition for the football sector. This research will critically examine the fraud and corruption risks that exhibit in football club ownership in England. The nature of the English football business of the last thirty years is analysed, focussing on the problems debt ridden football clubs face and their attractiveness for substantial criminal investment. Current strategies to counter fraud and corruption, in particular, money laundering in English football are critically evaluated. For example, the Fit and Proper Persons Test will be examined. This research will then suggest building on existing counter fraud and corruption strategies and suggest further approaches.

The proposed strategies will also draw on research of

strategies that counter money laundering in the UK financial services sector. This paper concludes by recommending a model counter fraud and counter corruption strategy for the English football sector and providing a summary of the key conclusions and will draw together the research as a whole. The research findings will show how it has extended the field of knowledge of fraud and corruption in football.

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Acknowledgements I would like to thank Rudith for letting me study while she was growing up. I am indebted to Lois who provided me with the support I needed throughout this journey and for this; I am eternally grateful and thank her for her patience. I would like thank CIFAS for their resource and time to allow me to complete this project.

Special thanks go to Kate

Beddington-Brown at CIFAS for her invaluable help. Finally, I would like to thank Graham Brooks at the University of Portsmouth for his advice and guidance on this subject.

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Contents Page Abstract

2

Acknowledgements

3

Chapter 1:

5

Introduction Chapter 2:

9

Critical review of the definitions of fraud and corruption and their application to football Chapter 3:

14

Critical examination of the fraud and corruption risks in football club ownership Chapter 4:

23

Critical evaluation of the current strategies to counter fraud and corruption in football in the England Chapter 5:

33

A model counter fraud and counter corruption strategy in football in the England Chapter 6:

43

Conclusion Bibliography

46

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Chapter 1: Introduction

This dissertation is a systematic literature review of existing research concerning the strategies involved in countering fraud and corruption in the funding of English football clubs and draw on, where relevant, with the financial services industry sector’s strategies engaged in preventing money laundering. The study will also suggest how we should counter fraud and corruption in football in England. There is value in researching fraud and corruption in football because it is a contemporary topic and current research in this area is lacking.

The Union of European Football

Associations (UEFA) and the European Commission (2007, p. 7) recognises that corruption and money laundering are warnings for sport and that sports bodies and public authorities need to work together to counter the threats that they represent (Hassan & Hamil, 2010, p.344). The Football Association (FA) continues to regulate football and has recognised the risk of fraud and corruption in the game by publishing a guide for football clubs on money laundering and the Proceeds of Crime Act (The FA, 2008). The football industry in England faces a higher risk of fraud and corruption due to the substantial increase in money flooding the game.

With more money in football, the European

Commission (2007, p. 5) stated that corruption is a consequence of a “spiral of spending, salary inflation and the subsequent financial crises faced by many clubs�.

Organised

criminals have found new ways to launder their proceeds of crime in the football sector, which also affects other sectors it trades with; for example, the construction industry. Furthermore, the money laundered through football could then be used in other serious organised crimes such as human trafficking and the trading of drugs.

Therefore, the

football industry is an appealing sector for criminals to target (Financial Action Task Force, 2009, p. 4-5, 7, and 13). Fraud and corruption in football is frequently reported in the media and involves and affects the wider community, which could ultimately jeopardise the game and its brand value (Gorse and Chadwick, 2009). Therefore, effective counter fraud and corruption strategies are needed to prevent infiltration from fraudulent and corrupt individuals.

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This research will hopefully benefit other academics to produce further research and discussion in this area and for the organisations involved in the regulation of football. Further research is required in order to determine whether current strategies will prevent the illegal financing of football clubs in England.

Aim A critical assessment of the current strategies used to counter fraud and corruption in the funding of professional football clubs in the England.

Objectives The definitions of fraud and corruption will be critically explored in Chapter 2.

The

complexities in defining fraud and the legal challenges of determining what comprises a fraudulent act will be analysed. This chapter’s central focus will be on the difficulties in understanding corruption, exploring different interpretations of its subjective nature and then applying a definition for the football sector. Chapter 3 will critically examine the fraud and corruption risks inherent in football club ownership in England.

This Chapter will analyse the nature of the English football

business of the last thirty years and how it has led to increasing fraud and corruption risks. Attention will be given to the problems debt ridden football clubs face and their ripeness for substantial criminal investment. We will also review literature on fraud and corruptions risks in football club ownership in Europe. An extensive critical evaluation of the current strategies to counter fraud and corruption, in particular money laundering, in English football is appraised in Chapter 4. Focus will be given to assessing the effectiveness of the Fit and Proper Persons Test to prevent fraudsters and corrupt individuals from owning football clubs in England. This Chapter will also examine the regulator status of the FA, the Premier League and the Football League and their strategies to counter the illegal financing of English football clubs. Attention will then turn to critically analysing the counter fraud and corruption strategies adopted by the International Federation of Association of Football and the UEFA.

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From an analysis of a series of researches, Chapter 5 will then suggest building on existing counter fraud and corruption strategies and will recommend further strategies. This will include a critical analysis of an enhanced vetting strategy, which will encompass an improved Fit and Proper Persons Test. The strategies of investigation and deterrence will be examined. The proposed strategies will also draw on research into strategies that counter money laundering in the UK financial services sector. This Chapter will conclude by recommending a model counter fraud and counter corruption strategy for the English football sector. Finally, Chapter 6 will provide a summary of the key conclusions and will draw together the research as a whole. The findings will show how it has extended the field of knowledge of fraud and corruption – and strategies to counter them – in football.

Design and methods This research is a systematic literature review.

To cover fraud, corruption, money

laundering and their presence in football, the critical review conducted research of the literature held in the following journals: Journal of Sports Economics, European Sport Management Quarterly, Soccer & Society, British Journal of Criminology, Journal of Financial Crime, Sport in Society, Journal of Community and Health Sciences, Managing Leisure, British Journal of Criminology, Journal of Money Laundering Control, Corporate Governance, Managerial Finance and Journal of the Society for Advanced Legal Studies. The research also reviewed literature from UK & European public sector, charity and professional services research projects, newspaper and television media and books covering the subjects of football management, criminal and corruption in football, financial services, fraud and corruption. Articles from football and football corruption blogs were also reviewed.

Ethics Although secondary data will be used extensively in this research, ethical considerations still have to be taken. Although it is expected that all secondary data is in the public domain, this research will address the ethical conditions of all secondary data providers. (" "


Personal communication from Dr Mark James, who gave some useful input, was reviewed. Mark James, who gave permission to use this communication in this research, is a senior lecturer at Salford University and was a researcher of a Supporters Direct publication.

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Chapter 2: Critical review of the definitions of fraud and corruption and their application to football

Accurate definitions of corruption and fraud that are fitting to the area being reviewed are critical because it defines the focus of what the research is attempting systematically to assess. However, a number of difficulties arise from defining corruption and fraud. For example, published definitions of corruption fail to encompass the private sector (Senior, 2006, p.20). The nature of corruption in football is incredibly diverse. It can cover doping players, “illegal performance enhancing technology”, “espionage”, “irregular financial practices”, “match fixing”, “cheating”, “illegal transfer of players”, and “money laundering” (Oxford Research, pp. 7-16). Money laundering in football in England will be the focus of this thesis. Money laundering is considered as one of the main threats to integrity of sport (Oxford Research, 2010, p.15). It is a “process” where “criminals” disguise their criminally sought wealth as a legitimate source (Leong, 2007, p.140; Johnson & Lim, 2002, p.7). This chapter will critically review the definitions of fraud and corruption and their applications to football. We will first review the definition of fraud and apply a critical analysis of the challenges that arise from the understanding of its definition and the legal difficulties in determining what offences are deemed fraudulent. Attention will then applied to the definition of corruption. Critical analysis will be applied to how the definition of corruption covers different aspects in sport and its subjective nature. Fraud is described as a “criminal method” where the “offender” induces “victims to part with things of value” by assuming the “facts” “misrepresented” by the “offender” were true (Zimring & Johnson, 2005, p.795). However, there is no “single definition” of fraud. The reason is that there is much emphasis on the “process” i.e. the deceptive act that is carried out before theft. Therefore, truly defining fraud is challenging because it “does not exist as a coherent or single activity” (Doig, 2006, p.19). Despite being legally established under the Fraud Act 2006, fraud is a “grey area” spanning from an “outright criminal offence, to being the result of poor business management, ignorance or even sharp business practice”. Fraud will “always have supplementary and wider definitions than those in law” (Attorney General’s Office, 2006, p.25).

Before the Fraud Act, there were “too many

specific fraud offences defined with reference to different types of consequences”. *" "


Prosecutors found it challenging to “identify which offence to charge” and therefore it was difficult to “secure a conviction”. There are still legal difficulties. Section 13 of the Fraud Act instructs a person to comply with a court order with respect to the Fraud Act offences and other related offences. Other related offences are “conspiracy to defraud” and any other offence that involves a “conduct or purpose” which is fraudulent (Summers, 2008, pp.10, 13).

This raises the question of what is fraudulent.

This is challenging. For

example, some UK companies believe that corruption is not a related offence (Summers, 2008, p.13). Furthermore, corruption is argued to be “not in essence, and should not be treated as, an offence of dishonesty or fraud” (Scanlan, 2008, p.27 citing Law Commission, 1997). Moreover, money laundering and bad debt are viewed as fraud (Levi & Burrows, 2008, p.312). Hence, fraud is difficult to interpret and therefore, a challenge to apply to football. There are also challenges when attempting to define corruption and because of this there is no collectively agreed definition available (Gorta, 2006, p. 204). Gorse and Chadwick (2009, citing Treisman, 2000; Den Nieuwenboer & Kaplein, 2008) draw attention to published definitions of corruption and criticise them as they do not cover corruption committed by athletes involved in sport. Definitions that are applicable to athletes include Maennig (2005, p. 189; 2008) who defines corruption as: “behaviour by athletes who refrain from achieving the levels of performance normally required in the sport in question to win the competition and instead intentionally permits others to win”. Maennig’s definition is, however, very specific to the act of an athlete throwing a match, it doesn’t include other ways in which athletes can commit fraud in sport such as by doping or the use of performance enhancing drugs (Gorse & Chadwick, 2009), therefore its usage is limited. Maennig (2005, p.189; 2008) importantly expands on the above definition to cover corruption by non-athletes as well to include immoral behaviours which deviate from the rules of a club, sport association or the standards of “society at large”. Corruption in sport can be divided into two categories, “competition corruption” and “management corruption”, which are related to altering results of a competition dishonestly through bribery and, for example, manipulating decisions about venues to host a football competition, respectively.

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This raises the question as to whether “management corruption” also incorporates the illegal financing of a football team or other interpretations of corruption. A further issue with defining corruption is that it can be interpreted differently by different people, cultures, boundaries and countries (Philip, 2006, 50-51; Zimring & Johnson, 2005, p.797; Johnson & Sharma, 2009, p. 3 & Maennig, 2005, p. 200 citing Bac, 1998 and Tanz, 1998). A bribe could be interpreted as a gift and vice versa (Zimring & Johnson, P.796). For example, it is alleged that Germany’s successful World Cup 2006 bid was aided by their hosting of “financially lucrative” football matches between Bayern Munich and clubs from Thailand, Trinidad & Tobago, Tunisia and Malta. This is an example of the difficulties in defining the corrupt act here. Was this an example of a “gesture of friendship” or a corrupt act?

Furthermore, obtaining inside information to secure a contract could be

interpreted as a usual international business practice. For example, it was alleged that a construction company paid large sums of money to Bayern Munich and TSV Munich for inside information in securing a contract to build their new stadium. This was deemed an “arrangement fee” in business mediation servicing (Maennig, 2005, pp. 200-202, 203 citing Frankfurter Allegemere Zeiting, 2004).

Another question is whether it should be

considered corrupt if a football team fields a weaker team even if the match cannot change their placing “in a competition but affect the placing of other teams in the same league” (Oxford Research, 2010, p. 7)? Senior (2006, pp. 27- 28) offers a “succinct and transparent” definition which can be applied to public and private sectors and “independent” of different interpretations over time and across countries. His definition of corruption displays 5 stipulations that must be fulfilled at the same times: “Corruption occurs when a corruptor (1) covertly gives (2) a favour to a corruptee or a nominee to influence (3) action(s) that (4) benefit the corruptor or a nominee, and for which the corruptee has (5) authority.” One could apply this definition in football match fixing (Gorse and Chadwick, 2009). However, it is worth noting that Senior (2006, p.19) is scrutinising the definition of corruption from an economic perspective. This may raise uncertainty whether this is a suitable definition from a criminological or sociological perspective.

Moreover, both

Senior’s and Maennig’s definitions of corruption in sport do not draw attention to “the importance of an exchange of money or benefits” between the corruptor and corruptee. !!" "


There are calls for a “legal standard” definition which should include the “graft and self dealing which doesn’t produce obvious victims” (Zimring & Johnson, 2006, p. 796). Therefore, a proposition to define corruption in sport “involves any illegal, immoral or unethical activity that attempts to deliberately distort the result of a sporting contest for the personal material gain of one or more parties involved that activity” (Gorse & Chadwick, 2009). This raises the question of whether the laundering of money in a football club is covered in this proposed definition. Football and other sports involve a variety of aspects which face the risk of corruption, for example, referees, players, construction and media. This is why Maennig’s categorisation of sports corruption “can have no claim to completeness” (Maennig, 2005, p. 203). With more stakeholders involved in football, we may find still further difficulties to define corruption in football. To conclude, this Chapter has focused on the complexities of defining fraud and corruption.

Despite fraud being legally established in English law, the difficulties in

defining fraud arise because it is an incoherent and unclear act. Moreover, the challenges in law are related to determining what acts are constituted as fraudulent. For example, some take the view that corruption is not fraud yet others consider that money laundering is fraud. Although many definitions have been proposed for corruption, complications still appear.

Proposed definitions of corruption can be applied to the football sector, in

particular, its players and non-players, competition and management.

Corruption is a

broad area. Therefore, the understanding of corruption is interpreted differently across different nationalities and cultures. For example, as mentioned earlier, in some cultures, a gift in the football business could be interpreted as a bribe. Further study is needed to define fraud and corruption for criminology and sociology. The definition of corruption needs to highlight the breaches in morals, law and ethical standards.

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Chapter 3: Critical examination of the fraud and corruption risks in football club ownership

This chapter will critically explore the fraud and corruption risks, in particular, money laundering in football club ownership in England and Europe through a programme of research. We will first analyse the stock market business model of English football, which led to increasing corruption in the last thirty years. Attention will then turn to the current model of English football club ownership and critically examine the fraud and corruption risks associated with funding from rich benefactors. We will also draw parallels with a similar type of ownership exhibited in Italy.

Critical analysis of organised criminal

involvement with debt-ridden football clubs will then be applied. Following an assessment of the money laundering processes involved in football, utilising examples from Brazil and England, we will critically evaluate the fraud and corruption risks that emerge from anonymous foreign ownership and the unverified source(s) of wealth of these owners. We will then explore the supporter-owned model of football clubs in Spain, Germany and England and its potential to deter criminal infiltration. Application of a critical evaluation of the conflicts of interest that transpire between owners and directors or football clubs, transfer management companies and sponsors will be carried out. We will then conclude this assessment of the risks of fraud and corruption under the different ownership structures involved in the football sector. The old model of financing a professional sports club in Europe was by donations made privately, for example, from fans and from subsidies, sponsorship and membership subscriptions. This model has changed because of tycoons and corporate businesses entering the sports market. Football was then being financed through merchandising, stock markets, media and corporations (Andreff & Staudohar, 2000, pp. 259, 262). For example, Tottenham Hotspur was the first football club to float on the London Stock exchange in 1983.

By 2000, 22 clubs were listed on the London Stock Exchange,

Alternative Investment Market and OFEX. This stock market finance model has since performed poorly. In 2000, 14 clubs de-listed from the Stock Exchange. Football clubs in England were not viewed as a good investment. Many clubs were in debt and did not attract investors (Walters & Hamil, 2010, pp. 19-20, 22). Andreff & Staudohar (2000, p. !$" "


273) observed that this “Media-Corporations-Merchandising-Markets” model went “adrift” partly due to the increasing corruption in football where clubs owners were involved in financial frauds. Although this model has what might be seen as improved corporate governance because of its legal requirements of the club being a company, its setback is that it lacks transparency (Arnaut, 2006, p. 76). Although football clubs in the Premier League have increased their collective turnover by 900% from 1992 to 2007, they have not collectively made a “pre-tax profit” during this period because of their expenditure. The same applies to clubs from the other football leagues. Clubs simply survive from new investment or new investors (Hamil & Walters, 2010, p.354). By 2007, foreign investment had become a prominent feature in English football.

Eight out of the twenty English Premiership football clubs were owned by

foreigners.

These were wealthy foreign investors who could afford the investment

(Walters & Hamil, 2010, p.24). But with no profit being made in English football, what is the motivation of such individuals to buy a football club? Logically, they must be motivated by “non-financial considerations”. For example, the owners are fans and want success for the club they support. However, association with a Premiership club is also good public relations for the owners’ other businesses they have in their portfolio (Hamil & Walters, 2010, p.355). Wealthy domestic and foreign investors also want to own a club for “vanity” reasons. They would like a “trophy asset”.

This seems to be the only motive to own a

football club in Italy, where their football business is too a “loss making” venture. Silvio Berlusconi owns the loss making A.C. Milan but this is his “trophy asset”. Furthermore, Russian investors like Roman Abramovich, who owns the Siberian Oil business and Chelsea Football Club, may want a “glossy image” for the public to see (Hamil & Walters, 2010, p.255; Walters & Hamil, 2010, pp.26, 30; Hamil, Morrow, Idle, Rossi & Faccendini, 2010, p.376; Riordan, 2007, p.551). There is, however, one other motivation to buy a loss making club and that is to launder the proceeds of crime. With football clubs in debt, coupled with the recent global financial crisis not attracting sponsorship as well as investment, they are attractive propositions for criminals launder their dishonest income. Furthermore, such clubs are likely to accept the money. There are also “non material rewards” for criminals. They provide a “sugar daddy” role, which brings them an enhanced social status in the local community (Financial Action Task Force, 2009, p.15). This is evidenced in Italy, where organised criminal gangs such as the “Ndrangheta” are laundering money in the lower leagues. This also brings a favourable !%" "


reception from the community near the local football club (Hamil, Morrow et al, 2010, p.382 citing Agnew, 2007). In England, Curtis Warren, a criminal who was Interpol’s main target, bought a lower league football club to launder money he made from illegal drug trades. An associate of Curtis Warren took over another club. There was also an allegation that a “well-known crime family” involved in armed robbery and dealing heroin own a football club in England (Johnson, 2009, pp.199-200). Russian Billionaires and mafia too “see football” and other “western European professional sports” as an opportunity to cover “their less sporting activities” and invest their illicit financial gains (Riordan, 2007, p. 546; Andreff & Staudohar, 2000, p.273). Money laundering in football involves multifaceted processes (Transparency International, 2009, p.2). It is achieved through manipulating the football club accounts by “inflating gate receipts”, buying empty spectator seats, “inventing a phantom revenue stream” and engaging in developing property near football stadiums (Johnson, 2009, p.199; Financial Action Task Force, 2009, p.20). involved in embezzlement.

Several Directors of French first division clubs were

In 1990, a Director at Bordeaux football in France was

involved in embezzling money and “illegally” acquiring “real estate”

(Andreff &

Staudohar, 2000, p.273). In Italy, football club owners were alleged to be involved in false accounting. This involved laundering money by “artificially” inflating player costs and tax evasion (Hamil, Morrow et al, 2010, p.394 citing Foot, 2007; Hamil, Morrow et al, 2010, p.394 citing Agnew, 2007).

Some clubs in Serie B, the Italian second division, were

involved in evading tax when paying their players (Baroncelli & Lago, 2006, p.20). The Financial Action Task Force (2009, p.15, 21) considered that by having an international market for transferring players creates opportunities for money laundering.

They

described the overvaluation of a player as similar to the money laundering procedure of “over-invoicing of goods and services”. Money laundering could be also facilitated through “tax havens” and by “front companies” who appear as owners of the football club (Transparency International, p.2). Media Sport Investment (MSI) was the owner of the Brazilian football team, Corinthians. MSI, founded by Kia Joorabchian, were alleged to be a front organisation of Boris Berezovsky. Berezovsky, once a business partner of Roman Abramovich and is now based in Britain, is wanted for fraud and murder. Joorabchian acted as a front for Boris Berezovsky when buying a Russian “influential commercial newspaper” in 1999. MSI was formed three months before the takeover of Corinthians. The company had no capital but drew funds from companies registered in the Virgin !&" "


Islands. An enquiry into MSI’s involvement with Corinthians was set up by the “Partido Popular Socialista”, the operator of Sao Paulo City Council. They concluded that there was “sufficient evidence” of money laundering in Corinthians and MSI.

In 2005,

Joorabchian was banned from carrying out any business in Brazil. This is an example of the “new direction in Russian involvement in world football” by taking over debt-ridden clubs (Riordan, 2007, pp.555-556). In England, shadow directorship has entered the game.

Stephen Vaughan was the

Director of Chester City F.C Limited, the company that went into administration in May 2009. The company that owns Chester City F.C. Limited is Chester City F.C. (2004) Limited where Stephen Vaughan is the owner and not the Director. He is the shadow director, which is “a person upon whose instructions the majority of the Board of directors of a company are accustomed to act” (Beech, 2009). In England, questions are raised with regard to the actual identities of the owners. In 2010, Christian Aid (2010, p.2) identified that 14 English Premiership League football clubs and 5 Championship League football clubs were owned by companies registered offshore where it was “impossible to verify” the actual owners.

In a survey of corporate

governance of football clubs in England and Wales between May to September 2003, however, 86% of the football clubs who responded disclosed their share register. By company law, a football club is required to have a share register which provides information on ownership. This figure is an increase from 67% in 2001 (Michie & Oughton, 2005, p.519). Yet in the same survey in 2006, this figure had decreased to 81% (Football Governance Research Centre, 2006, p. 19). Despite having no information in the public domain about the owners of Notts County and Leeds United, the Football League was satisfied with the ownership structure of these clubs. The football supporters of Notts County and Leeds United were concerned about this decision and complained to the Independent Football Ombudsman (Independent Football Ombudsman, 2010, p.15). In their appeal against Leeds United’s Company Voluntary Arrangement (which is an agreement on how debt is paid), Her Majesty’s Revenue and Customs (HMRC) were seeking assurances with regard to the identities of the creditors. Leeds United 2007 Ltd, which now trades as Leeds United, has a “complex ownership structure, a number of the owners are based overseas and the identity of the individuals who own the companies involved is unknown”. HMRC needed assurances that the debts at Leeds United were genuine. The reason being, Leeds United owed money to three offshore companies: 1) !'" "


Krato Trust, which is registered in the West Indies; 2) Astor Investment Holdings, which is registered in the Virgin Islands; and 3) Forward Sports Fund, which is registered in the Cayman Islands. There is no disclosure on ownership of these companies (Best, 2010, p.663; Best, 2010, p.663 citing The Guardian, 2007). Without being able to identify who the owners are nor being able to detect their source of wealth, the football club is clearly at risk of being a vehicle of money laundering. England appears to provide an opportunity for criminals launder their money in football. The structure of its football business is vulnerable to organised criminal infiltration. This is due to the criminal needing only to corrupt one or two important individuals. Whereas large businesses in other business sectors where income is spread amongst its stakeholders, including its staff, can cope with having one or two corrupt individuals (Johnson, 2009, p.197).

Johnson (2009, p.197-198) draws reference from a “leading

security analyst” in the financial services sector who believes that UK football clubs are locations where all the gold is stored like “gold-bullion reserves in a bank”. The club’s wealth is not spread.

There has been much criticism of authorities who govern and

regulate football in England. The UK government, the English Football Association and even the football fans allow Russians who operate illegal businesses to launder their illicit wealth (Riordan, p.557). Best (2010, p.666) states that the Football League and Football Association seem to show no concern “about foreign ownership of English football clubs, the identity of these foreign owners, their motives, intentions or whether their funds are from a legal or ethical source.” English football is vulnerable to money laundering because of its continued dependence of rich benefactors and the lack of effective financial regulation (House of Commons Select Committee for Culture, Media & Sport, 2011b). Transparency International (2009, p.3) indicates that the football sector, in general, has “financing and due diligence practices, culture and structure” that are fostering an “environment conducive to money laundering by organised crime.” Moreover, it is an easier opportunity to buy a football club in Britain because they have corporate structure, they are either Limited or Public Limited Companies and, more often than not, in financial difficulties. It is more difficult to buy a football club in Europe as their structure is often community/supporter owned (Riordan, 2007, p.557 citing Conn, 2005). The Spanish football clubs, FC Barcelona, Real Madrid, Athletico Bilbao and Osasuna are owned by their members and are democratically governed. At FC Barcelona, a president is elected every 4 years (Walters & Hamil, 2010, p.29). !(" "

Only Spanish companies or


Spanish people can be owners or shareholders at Spanish football clubs (Ascari, & Gagnepain, 2006, p.78). In Germany, football clubs are “constituted as registered associations”, which form a not for profit organisation, “eingetragener verein”.

The

“Verein” must hold 50% plus 1 vote of the football club. This is to protect the integrity of the football game and to avoid circumstances where one could own more than one football club. Although the football clubs are listed on the stock market, this system does not allow a rich tycoon like Roman Abramovich to have more control than the “Verein” and prevents ownership by undesirable individuals or “entities”.

Germany’s football structure has

restricted investment from foreigners (Dietl & Franck, 2007, pp. 664-666,668; Walters & Hamil, 2010, p.30).

The 50% plus 1 vote model has made their football clubs more

accountable to supporters.

Furthermore, since the inception of the German Football

League, Bundesliga, in 1963, not one football club has been declared insolvent (Supporters Direct, 2011, p.36). With no financial difficulties in German football clubs, this may provide a good deterrent against organised criminals wishing to launder their money. This begs the question as to whether this model could be replicated in England to help counter corruption. On the contrary, there is evidence that German football clubs “systematically rely on creative accounting to inflate assets and hide liabilities” (Dietl & Franck, 2007, p.667). Although the intentions of Germany’s model are to protect football clubs, the football clubs themselves are still engaging in a dishonest act. Similar to Germany’s model, the Supporters’ Trust model of ownership is an “independent, not for profit, democratic, co-operatively owned organisation that seeks to influence the governance of a football club through improved supporter representation and also to develop stronger links among a club, a community and a support base.” There are 150 Supporters’ Trusts in England, Wales and Scotland where most “are constituted as an Industrial and Provident Society”.

To comply with the requirements of the Football

League, the football club is registered as a private company. However, the Industrial and Provident Society are majority shareholders of the company. This membership model should be protected from a dubious potential owner. However, if a club faces debt, then it will require external financing (Arnaut, 2006, p. 77). Arnaut (2006, p.77) asserts that the requirement of external financing for membership club in debt is a vulnerable position. However, Arnaut does not state what these vulnerabilities are. Perhaps, vulnerabilities lie in the possibility that external financing could be by organised criminals. In 2008, the football clubs Portsmouth, Newcastle and West Ham were put up for sale but “attracted !)" "


little private investor interest” (Walters & Hamil, 2010, pp.22-23). These clubs may be attractive to organised criminals to launder money. However, there may be a potential development of a Supporters’ Trust model implemented in the English Premier League (Walters & Hamil, 2010, p.23). With a football club that is democratically run and of a cooperative ownership, this could potentially deter organised criminal infiltration and thus reduce the risks of money laundering and corruption. The recent scandals in Italian football are related to the conflict of interests with the football clubs and the stakeholders they engage with. For example, the risks of transfer market manipulation, inflating transfer values and ‘bungs’ were cited in relation to a football club and a transfer management company, GEA World. The Director of the football club, who managed the trading of players, negotiated with GEA World to establish player costs. However, GEA World was led by the Football club Director’s son. The transfer dealings involving GEA World “often led to the ridiculous exchanges of players or absurd prices being paid or frequent movements for no apparent reason” (Hamil, Morrow et al, 2010, pp.388-389, 390 citing Foot, 2007). Clearly, conflicts of interest may occur with ownership and sponsorship.

For example, Roman Abramovich’s company was the sponsor of

TSSKA Moscow, a first division Russian club and, at the same time, owner of Chelsea F.C., a first division English club (Riordan, 2007, p.552).

There could be a risk of

conflicting interests if both teams were to play against each other.

Moreover, Alexei

Fedorychev, who was one of the former owners of Dinamo Moscow, attempted to buy Monaco football club. However, due to money laundering allegations and his alleged criminal activities, he was unable to do so. His company was still able to sponsor Monaco, however, while he was still owner of Dinamo Moscow (Riordan, 2007, p.555).

Once

fraudulent and corrupt owners are in place at their football clubs, there is the potential for them to bring influence to the game, conflicts of interests and the perpetration of further crimes. To conclude, the funding of football clubs in England has changed from private subsidies to lucrative finance. However, this has led to football clubs being in debt and becoming insolvent. Taking the recent global recession into consideration, debt-ridden football clubs do not appear such attractive investments. So, why do individuals or businesses buy football clubs? There are superficial reasons; they are fans of the football team or it presents a positive image for them and their other businesses. However, they also see a debt-ridden football club as welcome opportunity to launder their proceeds from criminal !*" "


ventures. Organised criminals were involved in the lower leagues of Italian football. Not only are they successful in laundering their money, they receive an enhanced social status from the local community as they are seen as helping the local football club. Money laundering also occurs in the prestigious leagues too. Russian billionaires, some of whose source of wealth are difficult to verify, are involved in financing football clubs in Europe, through ownership or sponsorship. There is a variety of complicated money laundering techniques used in the football sector. These include manipulating the accounts, property development, tax evasion, dishonestly overvaluing a player at transfer stage, using tax havens, shadow directorships and front companies.

With these techniques, it is

sometimes impossible to identify who the actual owner of the football club is or to verify where the money has come from. In England, most Premier League football clubs are run by foreign owners who are based offshore. A former Premier League club, Leeds United, is funded by debt owed to three companies based in three different tax havens. HMRC were not able to verify the identity of the owners of these three companies or whether the money supplied by these companies was legitimate. Why does the English football sector allow unidentified rich investors to own clubs? It is evident that neither the authorities nor the fans seriously question the veracity of owners and where the money came from. The English football business is appealing to those who need to launder their illegal income. It is easier for investors to buy a club in England than in Europe, especially, Germany. In Germany, football clubs are community owned and governed thus restricting dishonest investment. One of the factors that make corruption easier in England is that football clubs are either Limited or Public Limited Companies, which are easier to buy. There is certainly potential for more English football clubs to be supporter owned, which may deter organised criminals entering the market. When the criminals become corrupt owners of their football clubs, they are able exert criminal influence to perpetuate further corruption. Conflicts of interests are generated when corrupt football clubs are engaged with other businesses that are operated by their families or associates and engage in, for example, the overvaluation of players.

It is quite clear that the ownership structure of English

football clubs is open to the risk of being infiltrated by criminals who are looking to invest their dirty cash and turn it into clean money and seek further investments. In the end, it is football and its fans who suffer.

English football clubs require effective strategies to

minimise and mitigate these fraud and corruption risks.

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Chapter 4 – Critical evaluation of the current strategies to counter fraud and corruption in football in the England

By referencing to a number of research papers, this chapter will critically evaluate the current strategies that counter fraud and corruption, particularly, money laundering in football club ownership in England. There are a various strategies available to counter the illegal financing of football clubs in England. These include establishing codes of conduct, independent complaints bodies and investigation units, whistle blowing policies, sanctions (Maennig, 2005, p.211, Oxford Research 2010, p.24, Football Governance Research Centre, 2006, p.9); ethics committees, club licensing, training and awareness of fraud and corruption, audited accounts and records, working with stakeholders (FATF, 2009 pp.31, 32, 35, 38, Oxford Research, p.4, Football Governance Research Centre, 2006, p.9, Arnaut, 2006, pp.44, 88, 90). The codes of conduct in football and in sport, in general, has often been criticised for not setting the right “behavioural standards” or incorporating ethical standards (The Independent Financial Commission, 2004, p.9; Auweele & Maesschalck, 2010, p.2). Another strategy the football authorities in England use to protect football from fraud and corruption is the “Fit and Proper Persons Test”. There are anxieties about the operators of the Fit and Proper Persons Test because of conflict of interest (All Party Parliamentary Football Group, 2009, p.3). The Football Supporters Federation believe that the current Fit and Proper Persons Test is fundamentally flawed because, for example, Robert Mugabe could be deemed as fit and proper to own a football club but not Nelson Mandela (House of Commons Select Committee for Culture, Media and Sport, 2011a).

Although it is

mandatory, details of the owners of some football clubs in the Football League are not in the public domain (Christian Aid, 2010, p.10). Conversely, fraud committed by “senior club officials” could have been prevented by proper HR management procedures (Emery & Weed, 2006, p.8). These issues will be critically examined in this chapter and will suggest that there is still a lack of transparency in the ownership structure of English football clubs even with the current Fit and Proper Persons Test in place (Hamil & Walters, 2010, p.355). We will #!" "


therefore analyse the Fit and Proper Persons Test and critically evaluate its effectiveness. This will include evaluating the performance of the Fit and Proper Persons Test in practice and its pitfalls.

This chapter will then turn to critically examine the Football Association’s

(FA’s), Premier League’s and Football League’s roles as regulators of the football sector and to what extent they prevent fraud and corruption.

The role of the International

Federation of Association Football (FIFA) and Union of European Football Associations (UEFA) in preventing fraud and corruption in football will also be critically assessed. In Chapter 3 we showed that, in the UK, a common model for ownership of a football club is similar to that of a company; it is listed on the Stock Exchange or is privately owned. The setback of this model is that it can lack transparency (Arnaut, 2006, pp.75-76). Therefore, more transparency is needed to root out corruption (Maennig, 2005, p.210 citing Tanzi, 1998). To enhance transparency, the football regulators have applied a “Fit and Proper Person Test” (Arnaut, 2006, p.44). The Fit and Proper Persons Test was first introduced in the English second tier league, the Football League in 2003. The Premier League followed suit and applied the Test in 2004. There are three Fit and Proper Person Tests which are operated by the Premier League, Football League and FA and “similar”. The FA operates the Test on behalf of the Conference, Southern, Isthmian and Northern Leagues. The Premier League’s Fit and Proper Persons Test is entitled the “Owners’ and Directors Test”. These Tests “effectively” prevent “anyone with a criminal record” including “convicted fraudsters” from owning a “football club” or progressing to managing a football club. These Tests should also protect “football clubs from people who are not necessarily concerned with the long term interests of a club” and prevent those “who do not have the necessary integrity” from acting as a director or owner of a “football club” (Hamil & Walters, 2010, p.355; Christian Aid, 2010, p.10; All Party Parliamentary Group, 2009, p.2; Supporters Direct, 2011, p.25, Walters & Hamil, 2010, p.27; Scudamore, 2011). Anyone who is appointed director or who owns more than 30% of a football club must pass the Test. Those who undergo the Fit and Proper Persons Test will be disqualified: if it is identified that they have an unspent criminal conviction for “fraud” or “dishonesty” in the UK or overseas; if they have been declared bankrupt; if it has been declared unlawful for them to act as a Director of a company registered in the UK; if they have been a Director of a football club that has been declared insolvent more than twice; if they have been banned from a sports ruling committee or any other “professional regulatory body” or an accredited association; if they are “on the sex offenders’ register”; or if they have been ##" "


involved in breach of the FA Rules on laying bets on games. The Premier League also insists that clubs declare and publish details of owners who hold more than 10% of shares and any “indirect” owners (Michie & Oughton, 2005, p.529; Christian Aid, 2010, p.10; Supporters Direct, 2011, p.25; Walters & Hamil, 2010, p.27; Scudamore, 2011). Although the Fit and Proper Persons Test’s objective is to establish transparency, however, questions are raised about their validity. Why not check for spent convictions? Why isn’t it possible to check for those who are currently unable, through disqualification or similar, to act as a Director of a company registered overseas?

Furthermore, if an

individual has been disqualified from being a company director, it is still possible him/her to set up a “shadow directorship” or establish a front where the identity of owner is not known and difficult to identify (Levi, 2010, p.121; Christian Aid, 2010, p.15; House of Commons Select Committee for Culture, Media and Sport, 2011b; Beech, 2009; Independent, 2005). Other questions arise. What would happen should an applicant fail a Fit and Proper Persons Test? For example, should a sanction be applied for failing to declare necessary information to the applicant or the club?

Furthermore, what happens where a club

unwittingly appoints a fraudster because there is a substantial amount of undiscovered and unreported fraud in the UK (Attorney General’s Office, 2006, p.38; NERA, 2000, pp.23; BDO Stoy Hayward, 2009, p.7)? For these reasons, the Fit and Proper Persons Test, as a strategy to counter fraud and corruption, has faced criticism. It is difficult to measure the success of the Fit and Proper Persons Test as the information about its performance is not shared in the public domain (Michie & Oughton, 2005, p.529; Christian Aid, 2010, p.14). However, Christian Aid (2010, p.10) identified that only two people have failed the Test. Dennis Coleman failed as Chairman of Rotherham Football Club (FC) as he had been declared twice insolvent. Stephen Vaughan was deemed not to be a fit and proper person to own Chester City FC as he had been banned from being a company director for 11 years and was a tax fraudster. But there have been other fraudulent and corrupt owners and directors who passed the Fit and Proper Persons Test without explanation. For example, Spencer Day, a convicted fraudster, is the owner of Chertsey Town FC. Peter Yeldon, a director at Salisbury City FC was “severely reprimanded and fined for malpractice” by the Institute of Chartered Accountants in England and Wales, yet he was considered fit and proper by the FA (Beech, 2009). The rich benefactor owner of Darlington FC was a tax fraudster yet passed #$" "


the test.

The FA did not sanction Ken Richardson, owner of Doncaster Rovers, for

conspiring to burn down the Doncaster Rovers stadium.

Furthermore, he had been

banned from horse racing for 25 years in 1984. Despite being an insurance fraudster and banned from a sports body, he was deemed to be a fit and proper person to run Doncaster Rovers (Bower, 2007, p.21; House of Commons Select Committee for Culture, Media and Sport, 2011b). Interestingly, one of the owners of Portsmouth FC, Vladimir Antonov, was considered a fit and proper person by the Football League even though the UK financial services regulator, the Financial Services Authority (FSA), would not allow Antonov’s business to trade in the UK.

Antonov’s business failed to provide the necessary

information required by the FSA to trade in the UK. Furthermore, there were allegations that Antonov was linked with the Russian Mafia (Beech, 2011). Thaksin Shinawatra passed the Premier League’s Fit and Proper Persons Test to own Manchester City FC. Shinawatra was ousted as Prime Minister of Thailand by a military coup due to “allegations of corruption and human rights violations”. He was charged for corruption and his assets of £800m stored in Thai banks were frozen. Despite this and being criticised by Amnesty International and Transparency International, the Manchester City Board of Directors and the Premier League were not concerned about Shinawatra’s suitability to be an owner of a football club (Walters & Hamil, 2010, p.28; House of Commons Select Committee for Culture, Media and Sport, 2011a).

Walters & Hamil

(2010, p.28 citing Winter 2008) stated that Shinawatra passed the Premier League’s Fit and Proper Persons Test because “he had not been convicted of a criminal offence”. Furthermore, Richard Scudamore, the Premier League Chief Executive, proclaimed that the Premier League were unable to prevent an individual that faced criminal charges from an unelected military government from owning a football club. This raises the question as to whether the Test should be extended to disqualify an individual from owning or directing a football club if they are subject to a fraud or corruption investigation or prosecution anywhere in the world.

Shinawatra was eventually sentenced for corruption by a

democratically elected government in Thailand and there is a warrant for his arrest. Although Shinawatra promised long-term investment to Manchester City, he sold the club to the Abu Dhabi United Group making a £20m profit (Walters & Hamil, 2010, p.27). These examples show that the Fit and Proper Persons Test across all the leagues has failed to prevent fraudsters and corrupt individuals from owning and directing football

#%" "


clubs. Moreover, in most cases, is difficult to determine why this has been allowed to happen. Supporters Direct (2011, p.25) believe that the current Fit and Proper Persons Test is too focused “on a series of crimes and misdemeanours that are deemed to be incompatible with involvement in club ownership or direction.” It is fair to say that, in most cases, the Test prevents potential owners or directors who were convicted of a crime from involvement in football clubs. However, the Test is not sufficiently preventing people “with unethical goals”. The reason for this is that the Fit and Proper Persons Test is too specific, too objective and not “subjective” enough to take a wider view. This therefore conspires to mean that the Test is not an adequate “deterrent”. This raises the question of whether the Test criteria should be widened to cover unethical activity as well as fraud and corruption. Furthermore, the Test makes no attempt to interrogate the owner’s long term business plan for the football club. Another significant pitfall is that the Fit and Proper Persons Test is carried out retrospectively.

To improve the protection of football clubs, the vetting

should be carried out before the owner is in place and proactively (All Party Parliamentary Group, 2009, p.2; Arnaut, 2006, p.77; House of Commons Select Committee for Culture, Media and Sport, 2011a). Furthermore, the Fit and Proper Persons Test could also be applied to all shareholders, directors and employees of the football club (Emery & Weed, 2006, p.8).

The methodology of the Fit and Proper Persons Test appears to be

insufficiently comprehensive to prevent fraudulent and corrupt owners from involvement in running football clubs because the vetting is too narrow and objective and is not applied to all key positions of the football club. Where there are foreign investors who buy football clubs with debt, it is suggested that a stronger Fit and Proper Persons Test is required (Walters and Hamil, 2010, p.27). This should include, identifying the source of money to buy a football club, which could conceivably be viewed as the most important financial check. However, this not enforced under the current regime. The football authorities do not investigate the source of the funds (M. James, personal communication, July 27, 2011).

It is a requirement to

“understand who the real beneficial owners and controllers of a club are” and this should “assist in the fight against money laundering” (Arnaut, 2006, p.90).

The FA does

recommend that football clubs ensure that investors’ identities be established and confirmed by those whom they transact with (The FA, 2008, p.16).

Furthermore, the

Premier League uses “corporate investigations and intelligence” to carry out vetting #&" "


checks, which are conducted in confidence. However, there is a lack of international exchange of information to detect those engaged in money laundering (Financial Action Task Force, 2009, p.38). As a result, the Fit and Proper Persons Test is not developed enough to identify the real owners nor where their money is sourced from. Football in England is self-regulated. The FA, working with the Premier League and the Football League, are the regulators of English football.

However, they are effectively

“three governing bodies”, “three membership associations” and three limited companies where the shareholders are their members.

In addition, the FA is not independent

because, for example, the Premier League is represented on the FA Board. This therefore presents a conflict of interest. Furthermore, the FA has no representation from players or supporters. The regulator lacks transparency and is slow at countering the “ills in the game” (Independent Football Commission, 2004, pp.8-9). Greg Clarke, the Chairman of the Football League, admitted that the Football League is not resourced sufficiently to investigate potentially fraudulent and corrupt owners or directors (Sanders, 2011, July 18). Boyle (2010, p.1309) deduced that self-regulation in the financial services in the UK has not worked well and that, therefore, this model is not working in football. This does raise the question whether one could compare the regulation of the financial services with that of football and their common objectives to reduce fraud and corruption - hence this requires further study.

Richard Scudamore, though, believes this current regulation is

working effectively and does not require any amendment (Hamil & Walters, 2010, p.356). The FA recommends that football clubs should have a strategy in place for preventing money laundering. This includes appointing a senior officer to report money laundering; conducting money laundering awareness for staff; and properly recording the money transactions at the football club. The FA works closely with law enforcement agencies and recommends that clubs should send Suspicious Activity Reports to law enforcement if they suspect money laundering.

This is not an obligation, however (The FA, 2008, p.16;

Financial Action Task Force, 2009, pp. 35, 37). Auweele & Maesschalck (2010, p.2 citing Donelly & Petherick, 2006; Forster & Pope, 2004; Parich & McArdle, 2006) criticise sport in general for its “self-cleansing”. The “sports sector” has a reputation of not being critical of itself or “accepting criticism rightly directed at it.” Hence the call for an independent regulator and government help (Boyle, 2010, p. 1309).

The now defunct Independent Football Commission was set up in 2002. #'"

"


Nevertheless, the Commission was headed by someone with no experience in regulation and investigation (Bower, 2007, p.2). This suggests that having an independent regulator or unit requires expertise to regulate and investigate crime in the football sector. Despite having guidance to prevent money laundering, the model of self regulation presents a conflict of interest and may require outside help to establish a firmer strategy to counter corruption and fraud. FIFA has substantially resourced “an anti-corruption centre in Singapore” which was established with Interpol, the International Crime Police Organisation.

However, the

resource is not for investigating and enforcement of corruption. Furthermore, Interpol does not have a remit to investigate any corruption. The resource provided by FIFA is for education on corruption. Though, Hill (2011b) describes this education to be in the form of “how to be corrupt” courses and this anti-corruption unit a “sham”. To support this point, the Charted Institute for Management Accountants (2008, p.29) argues that training staff in techniques of how fraud is committed could potentially arm employees with skills to commit fraud. Unlike the Football League, FIFA has the resource to fund the fight against corruption. However, the resource is not being put use efficiently for investigating those engaged in illegally financing football clubs. In contrast, UEFA did monitor and carry out “spot checks” on the FA to ensure that football clubs in England were complying with the UEFA Club Financing System (Arnaut, 2006, p.82).

However, there is no description of what these checks were.

This raises the

question of how precisely UEFA ensured that the finances of English football clubs were properly accounted for. Indeed, the authorities were weak to respond to the scandals in Italian football. Some Italian clubs “are controlled either directly by individuals or families or indirectly via corporate groupings”. However, if you compare this with normal business practices, there is “little evidence of separation between ownership and control”. Therefore, there is less “pressure of external monitoring”.

The owners are effectively

monitoring “themselves” (Hamil, Morrow, Idle, Rossi, Faccendini, 2010, pp.387, 391). This may suggest that UEFA is ineffective in monitoring the finances involved in European football clubs. Arnaut (2006, p.90), concedes that there is no “anti-money laundering framework within football” in Europe and that the bodies engaged in football cannot “take the legal responsibility for adjudicating on all money laundering activities”. This raises the question of who does take this responsibility.

UEFA, though, will be introducing the

Financial Fair Play Rule in 2013 for football clubs who play in the European tournaments. #(" "


It is a directive for all those clubs to operate their businesses to break even (Toft, 2011). This Rule will therefore restrict spending at football clubs, which should make it less attractive for criminals to launder their money through football (M. James, personal communication, July 27, 2011). To conclude, in order to achieve greater transparency to prevent fraud and corruption in English football clubs, the Fit and Proper Persons Test was adopted by the football leagues and the FA. Although information about the adjudication of the Fit and Proper Test is not in the public domain, there is no evidence that the Test is broad enough to protect football clubs. Convicted fraudsters and professionals who had been admonished by their accredited associations and prohibited from trading in the UK were still deemed by the football regulators to be fit and proper to own and direct football clubs. One high profile corrupt individual, who has an arrest warrant for corruption charges and was criticised by a human rights charity and an anti corruption organisation, was judged by the Premier League to be fit and proper to own Manchester City FC. The Fit and Proper Persons Test is too focussed on convicted criminality and not subjective or broad enough, for example, to request owners and directors to declare spent criminal convictions if they are under an investigation for fraud or corruption or to check whether they have any potentially unethical purpose in owning a football club. With organised criminals operating globally, the Test doesn’t check owners or directors against any international data sharing schemes. This means that, with the low prosecution rate and reporting of fraud in the UK, a club may still appoint a fraudster. To apply the Fit and Proper Persons Test on owners and directors after they are in place is also too late in the process. Neither is it applied to other key staff involved in the management football clubs. Furthermore, significantly, the Test is unable to verify the source of wealth of an owner. It is fair to say that England’s football regulators, who are responsible for preventing fraud and corruption in football, have some good practice and guidance. However, there are conflicts of interest written its self regulation process and its structure for rooting out fraud and corruption. Football regulators operate the Fit and Proper Persons Test to enhance transparency. But the regulators are not transparent themselves. Furthermore, there are reservations about their ability to resource investigations into fraud and corruption. This raises the question as to whether an independent body or government subsidy is required to help with resourcing investigations into fraud and corruption in football.

FIFA’s

international strategy to counter corruption is limited only to education. Indications are that #)" "


this is not enough to prevent fraudsters and corrupt individuals from infiltrating football. Educational awareness programmes may even initiate to bring more fraud and corruption into the game as individuals, in the name of education, are taught about methods of corruption. UEFA attempts to defy fraud and corruption by monitoring clubs in Europe to ensure that they comply with the licensing regulation. UEFA’s introduction of the Financial Fair Play Rule should help deter criminals from creeping into the game as there should be less appetite to spend, which is necessary for money laundering. In summary, however, the current strategies to counter fraud and counter corruption in the management of football clubs are not effective.

Therefore, to develop a model counter fraud and

corruption strategy to prevent fraudulent and corrupt individuals from owning football clubs, it will be necessary to build on existing principles and put in further tactics.

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Chapter 5 – A model counter fraud and counter corruption strategy in football in the England

Using research, this chapter will critically evaluate the suggested strategies to counter fraud and corruption and in particular, money laundering in football club ownership in England. Due to the UK’s strong money laundering regulations, organised criminals are deterred from laundering their wealth through the UK’s banking sector (Johnson & Lim, 2002, p.15). Furthermore, Dewing & Russell (2008, p.978) suggest that the financial services regulator’s vetting regime could be used in other business sectors. The new approaches discussed in this chapter will also draw from strategies used to combat money laundering in the financial services sector. Critics have suggested measures to improve the Fit and Proper Persons Test. These include unifying all three Fit and Proper Persons Tests operated by the Football Association (FA), Premier League and Football League into a single Test, where it would be administered by an independent “Football Regulatory Authority” (All Party Parliamentary Football Group, 2009, p.2; House of Commons Select Committee for Culture, Media and Sport, 2011a). Arnaut (2006, p.90), however, suggests that to improve the licensing of football clubs, there should be a “European-wide” Fit and Proper Person Test. Other new approaches that could be considered for combating corruption and fraud in football comprise of integrity risk management strategy and targeting areas of high risk to counter its causes (Auweele, 2010, p.45; Auweele & Maesschalck, 2010, p.4); education to promote values and integrity, training and awareness on money laundering in football (Financial Action Task Force, 2009, p.35; Oxford Research, 2010, p.3; Auweele & Maesschalck, 2010, p.6; Transparency International, 2009, p.6); and encouraging supporter ownership to promote transparency (Supporters Direct, 2011, p.36). However, this chapter will focus on the strategic objectives of vetting, sanctions, investigations and internal controls. We will first critically evaluate the suggested measures to improve the Fit and Proper Persons Test. These measures include enhanced identity checking, verifying $+" "


a potential club owner’s source of wealth, data sharing, internet searches and other verification checks. We will then analyse the implementation of a deterrent strategy and critically assess possible sanctions that football authorities could adopt. The investigations strategy will then be evaluated, in particular, critically exploring the use of external monitoring and specialist investigations units. A brief overview and critical analysis of a combination of internal controls will be provided.

Then, based on the series of

researches, (critically examined in chapter 4 and this chapter), we will conclude by proposing a model counter fraud and counter corruption strategy for the English football sector. As outlined in Chapter 4, it is apparent that the Fit and Proper Persons Test and other forms of vetting carried out are not operating effectively to prevent and deter fraudsters and corrupt individuals from owning or directing football clubs in England.

Enhanced

vetting and a significant prevention strategy are therefore required. The reason is that it is important to “understand who the real beneficial owners and controllers” of a football club are not at least because it will help with countering money laundering (Arnaut, 2006, p.90). To meet this objective it is essential to “obtain properly documented and corroborated information” with regard to the owner’s identity (Financial Action Task Force, 2009, p.20). The financial services regulator, the Financial Services Authority (FSA), requires financial companies to help prevent money laundering by clients by carrying out thorough identity checks.

However, its methods of carrying out checks on identity “rely on sources of

information available only to the client”. Furthermore, there is no “independent official reference source that can verify the information provided by the client.” Moreover, it is possible for the client can easily to provide a false identity.

This may therefore cast doubt

on the validity of identity checking because a “sophisticated money launderer can “easily” circumvent the FSA’s “onerous” vetting obligations (Gill & Taylor, 2004, pp.587, 591). Verifying the identity of the owner of a football club is crucial to prevent fraud and corruption. Due to these weaknesses in conducting identity checks, however, it cannot be solely relied on. As well as obtaining information to verify identity, it should also be necessary to require “properly documented and corroborated information” about the football club owner’s “business and sources of wealth and funds” (Financial Action Task Force, 2009, p.20). Not only should the Fit and Proper Persons Test “be extended to ensure that only those who could demonstrate a clear ability to finance a football club as an ongoing concern $!" "


should be allowed to take ownership of an English football club” (Hamil & Walters, 2010, p.355) but it should also be established whether the source of finance was legally acquired (Supporters Direct, 2011, p.41).

The FSA (2011a, pp.16, 26, 34,) published

recommendations for banks to mitigate high money laundering risks, which include establishing and documenting their client’s “source of wealth”. To help with this, the FSA recommends that banks should carry out checks on their clients against “commercially available PEP databases”. A PEP is a Politically Exposed Person which is defined as an individual, including his or her close associates and family, who is “entrusted with a prominent public function by a non UK country, the European Community, or an international body.” A PEP could, therefore, present a significant money laundering and corruption risk. With prominent foreign investors, some from known corrupt countries, entering the English football business, it might well be worth football authorities considering such checks against PEP databases on potential owners.

Banks are

recommended to have “face to face meetings and discussions” with potential “high-risk” customers before taking them on. Furthermore, they are also advised to understand and document “ownership structures complex and opaque corporate structures and the reasons for them” (FSA, 2011a, p.34). This therefore suggests that forensic accountants should be employed to scrutinise the accounts of the potential owners in order to identify any money laundering (M. James, personal communication, July 27, 2011). Considering that the ownership structure of football clubs, as reviewed in Chapter 3, are often complex and involve high risk individuals, football authorities too may be able to adopt these recommendations. A combination of robust vetting, including checking PEP databases, interviewing of rich foreign benefactors of football clubs and using forensic accountants is necessary in order to achieve improved transparency, particularly in relation to the source of their riches. There may be occasions where fraudsters and corrupt individuals may not appear on a PEP database.

David Howman, Director-General of the World Anti Doping Agency

(WADA), acknowledges that the “criminal underworlds” attempt to corrupt sport globally (Hill, 2011a).

Additionally, rich football club owners, who may be involved in global

organised crime, are also UK citizens. Other forms of information sharing, nationally and internationally, are therefore required in order to detect money laundering activity (Financial Action Task Force, 2009, p.38). Stefanou (2010, p.103) argues that due to the lacking of support amongst the countries belonging to the European Union (EU), a $#" "


convicted fraudster or money launderer may be able to infiltrate and gain a job at a bank from one EU Member state to another. Therefore, a fraudster or money launderer could be able “to gain access to the tendering processes or employment in positions of strategic importance for money laundering criminal gains again” (Stefanou, 2010, p.113 citing Xanthaki, 2005). This raises the question as to the lack of information sharing across EU Member states, enabling a fraudster from one EU Member state to go to England and buy and manage a football club for money laundering purposes.

Information sharing by

national and international authorities can be achieved by “cross referencing of computerised databases” (Stefanou, 2010, p.101). For individuals who are applying for a financially regulated role, the FSA conducts checks on their details against a “Shared Intelligence Database”, which includes information supplied by law enforcement (Chatain, McDowell, Mousset, Schott & Van Der Doers De Wellebois, 2009, p.51). In order to detect fraud and money laundering at an early stage, the FSA also submits intelligence to a Financial Fraud Information Network that is shared amongst other “regulators and law enforcement” (Leong, 2007, p.144).

This procedure could also be applied to require the

FA to share information on convicted fraudulent and corrupt football club owners and directors with other national and international football associations. This would require international co-operation to share information (Financial Action Task Force, 2009, p.38; Oxford Research, 2010, p.4). However, the benefit would be that all stakeholders in this information sharing would be able to detect a fraudster or corrupt individual through cross referencing. The All Party Parliamentary Group (2009, p.2) suggested that the Fit and Proper Persons Test be “prospective”. This meant that “anyone with a criminal charge hanging over them should not be allowed to take over a football club until their name has been cleared”. This would prohibit owners or directors who were still being investigated for an offence (House of Commons Select Committee for Culture, Media and Sport, 2011a).

Similarly, for

persons that need to be approved by the FSA to determine their “honesty, integrity and reputation”, they must not be subject to any criminal, disciplinary proceedings or complaint (FSA, 2011b). Stefanou (2010, p.108) proposes an EU wide database for investigations and prosecutions of organised criminals. However, there is the principle that those who are being investigated are innocent until proven guilty (Stefanou, 2010, p.109 citing Birkinshaw) and this raises the question of whether football authorities would have the

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right to check prospective club owners against an investigations database. Given the FSA’s precedent, however, this should not be an insurmountable obstacle. Another way to verify an owner is by conducting internet searches.

This method is

recommended by the FSA for banks to minimise the high money laundering risks (FSA, 2011a, p.23). A simple Google search could reveal, for example, an owner who was being linked to corruption allegations.

Whilst there is the potential to enhance vetting by

conducting media screening of potential owners, however, there is the possibility of defamation. This could be so especially where allegations of corruption identified on the internet were unfounded or where no evidence was established (M. James, personal communication, July 27, 2011). Therefore, it would be important to explore and verify any allegations of fraud and corruption by the owner found through media screening. There are other checks that could be included in a Fit and Proper Persons Test. Football authorities should verify whether owners and directors were involved in match-fixing, money laundering or doping athletes (Arnaut, 2006, p.77). The Fit and Proper Persons Test should also take into consideration any warnings about an owner or director from Amnesty International or Transparency International or who is on the “Human Rights Watch” (House of Commons Select Committee for Culture, Media and Sport, 2011a). The Test ought to adjudicate on the proposed owner’s business plans for the long term interests of the football club (All Party Parliamentary Group, 2009, p.7). This would help ensure that the owner was not going to use the club for criminal gains. In regulating the financial sector, the FSA requests a number of checks against an individual in a key financial services position. These include conducting checks on criminal records, including spent convictions especially relating to offences of dishonesty, fraud and financial crime and civil proceedings on fraud. Individuals will also be checked if they have any existing or previous disciplinary record or have contravened the principles of any regulatory body. The FSA also verifies whether the individual was involved with a company or organisation that did not satisfy a regulatory or membership requirement. Furthermore, it will check whether the individual was ever “investigated”, “disciplined” or “criticised” by a regulator, professional association, Court or Tribunal and whether he or she was dismissed, or asked to resign, from a position of trust. These checks apply to the UK and elsewhere (FSA, 2011b). These comprehensive and objective checks could be introduced to the Fit and Proper Persons Test to help not only prevent, but also to deter criminals from laundering their money through a football club. $%" "


The football authorities should also implement a deterrent strategy. This would not only discourage criminals from investing in football clubs but also discourage football clubs from knowingly taking criminal investment. In Germany, football clubs in the Bundesliga who “fail viability tests” have their “professional licences” to compete in football revoked and relegation to the semi-professional leagues (Supporters Direct, 2011, p.36). Therefore, the English football authorities should also consider banning football clubs who knowingly accept investment from criminals and having the club relegated to the lower divisions. In the UK financial services sector, the FSA invokes a set of disciplinary actions against those who breach regulatory principles. These include administering a private warning, naming and shaming and withdrawal of the regulatory status of the individual. Furthermore, “serious breaches” of principles will naturally result in fines. cannot be paid through the individual’s business’s insurance policy.

Such fines

Maennig (2008)

believes that stronger sanctions are needed other than a ban for corruption in sport. Higher fines have a “good deterrent effect” and would be more economically viable. The victim, i.e. the football consumers, would benefit from the fine applied to the corrupt club owner (Maennig, 2005, p.205). With low levels of sentencing of fraud in the UK and a perception that fraudsters “perceive” that they may easily evade conviction and receive “a light sentence for complex, multi-jurisdictional frauds obtaining sums of money vast compared with other types of crime for gain” (Levi, 2010, pp.119, 130) , then high fines could very well provide an appropriate sanction and deterrent. Although the International Federation of Association Football (FIFA), which is responsible for safeguarding the integrity of football, has established an independent ethics committee (Financial Action Task Force, 2009, pp.10, 31). David Howman concedes that sports organisations are neither sufficiently experienced, nor have the funds or the lawful authority, to deal with organised criminal infiltration in sport. Instead, Howman proposes that a board consisting of sports and governments should oversee WADA, the strategic objectives to combat match fixing and all other forms of corruption. The operations to counter other forms of corruption would be funded by the proceeds identified from the crime (Hill, 2011a). The Football Governance Research Centre (pp.9, 9 citing Arnaut, 2006) also recommends that UK Government and the FA should co-operate to prevent serious fraud and that the Union of European Football Associations (UEFA) and the FA to establish or enhance existing “dedicated anti-fraud units”. However, due to the conflicts of interests issues raised in Chapter 4, it could be preferable to introduce “independent $&" "


investigating institutions” (Maennig 2005, p.211) or an independent regulator to scrutinise football (The Independent Football Commission, 2004, p.9). Furthermore, to ensure that football clubs are compliant with European club licensing rules, the authorities should instruct clubs to submit their annual accounts for independent audit inspection (Arnaut, 2006, p.90). There are similar efforts in France and Italy to have an independent control on finances of football clubs (Financial Action Task Force, 2009, p. 31). However, there have been numerous questionable accounting practices in French and Italian football clubs (Maennig, 2005, p.190; Hamil, Morrow, Idle, Rossi, Faccendini, 2010, p.391). This may indicate that, without having these independent controls, false accounting and money laundering might not otherwise have been detected. It is therefore clear that some form of separate anti fraud and corruption investigation team should be set up. However, further study is required to ascertain whether this team should be entirely independent from the football governing bodies or should sit within, for example, the FA. Internal controls such as a code of conduct or ethics and whistleblowing are important features in a counter fraud and counter corruption strategy in sport. These could be used for all staff employed in a football club and especially for those senior executives engaging with potential club owners seeking investment. The code of conduct or ethics should be “clear” where “behaviour” and “misbehaviour” can be defined, described and measured. There must be a process enforcing the code stipulating that a sanction be applied to those who breach it (Maennig, 2005, p.211; Maennig, 2008; Auweele & Maesschalck, 2010, p.5). There should be a clause specifically on anti corruption (Transparency International, 2009, p.6).

One of the FSA’s high level objectives is to reduce financial crime (Dewing &

Russell, 2008, p.986). This may serve as useful model for the football sector’s regulator. Thus, the tone from the top would be that fraud and corruption is not tolerated in the football sector and will be sanctioned. Furthermore, football clubs should consult with their fans (Supporters Direct, 2011, p.11) so that they too can voice their concerns and show that they will not tolerate organised criminal gangs being involved in football (Johnson, 2009, p.201).

If anyone identifies fraud or corruption, there needs to be a formal,

confidential procedure for reporting, such as a whistleblowing policy. The whistleblowing policy must “guarantee anonymity” and reward those who report fraud and corruption (Maennig, 2005, p.211) at a football club. However, if a whistleblowing report made it to the public domain, it could damage the image of football (Auweele & Maesschalck, 2010, p.7 citing Lenskyi, 2006; Jennings, 1999), although it could be argued that the image of $'" "


football is already tarnished in this respect. Other internal controls that could prevent a fraudulent and potential football club owner courting a football club are a gifts and hospitality policy, separation of duties to improve monitoring and job rotation, so that staff cannot build “undesirable routines and relations” (Auweele & Maesschalck, 2010, p.5). Having a gifts and hospitality policy at a football club may help to prevent a fraudster bribing board directors. Furthermore, combining all of these internal controls, especially by using a code of conduct or ethics that is communicated by the top, would help identify and prevent fraud and corruption in the football sector. To conclude, it is fundamental that fraudsters and corrupt individuals are prevented from buying football clubs. This can be achieved in a number of ways. One of the principle ways to reduce fraud and corruption would be through enhanced vetting, which could be incorporated in the Fit and Proper Persons Test. Enhanced vetting can involve a combination of objective and subjective checks, which will also help to prevent fraudsters and corrupt individuals from moving around and to detect money laundering at an early stage. It is important to carry out but not solely rely on identity checks as identities can be easily falsified, especially by the highly sophisticated fraudsters. In addition, it is essential to verify the football club owner’s source of wealth. The source must be legally documented and verified. Investigations can be conducted into the owner’s accounts and through PEP databases. Furthermore, football authorities could share data, reciprocally, about fraudsters and corrupt individuals who are identified, nationally and internationally and with law enforcement.

However, caution must be

observed when considering sharing data on those who are currently being investigated for fraud and corruption as they could conceivably be innocent. The same would apply to carrying out internet searches on football club owners. It is important that allegations of fraud and corruption are properly researched and verified.

This may require further

research and possibly a face to face interview with the owner, offering them to respond to these allegations.

The Fit and Proper Persons Test could also carry out ethical and

honesty checks. These could include checking criminal records with spent convictions, civil proceedings on fraud, warnings from Amnesty International and Transparency International, the Human Rights Watch and disciplinary sanctions from professional or trade associations. By having such comprehensive vetting controls, this should help to deter criminals from trying to enter the football sector.

Other internal controls should

include whistleblowing and policies to increase the monitoring in order to minimise the $(" "


bribery risks.

Furthermore, a clear, enforced code of conduct or ethics should be

implemented. The code should have special emphasis on fraud and corruption and should be embraced by all stakeholders within football. Investigations into fraud and corruption in football should be carried out by a specialist team. Further study is required on whether this team should be independent or should sit somewhere within the current governing bodies. Annual accounts of football clubs should be independently audited to deter and detect money laundering.

These investigation

teams could at least partly be resourced through the proceeds of crime they identify and through fines. As sentencing of fraud is low and penalties are low, it will be important that the sanctions against a football club or club owner involved in money laundering, fraud or corruption are effective and have a deterrent effect. Therefore, as well as a ban from football competitions and relegation to the lower leagues, higher fines will be required. Based on the systematic literature review, this thesis recommends the following model strategy to counter fraud and corruption in football clubs in England: 1. Extend the Fit and Proper Persons Test, which should be carried out before the potential football club owner is in place, to cover: a. Substantiated identity checking of owners, directors and other key senior staff b. Establishing the source of wealth of owners c. For foreign investors, conducting checks against PEP databases d. Conducting checks with information sharing schemes nationally, internationally with other football authorities and with law enforcement on any identified corrupt owner e. Considering checks with information sharing schemes about individuals currently being investigated for fraud or corruption f. Considering internet searches, while being mindful that results would need to be verified g. Conducting ethical and honesty checks h. Carrying out a face to face meeting with the potential owner 2. The introduction of a dedicated anti fraud and anti corruption investigations team, which would be resourced as far as possible by proceeds from the criminal activity they identify and from fines $)" "


3. The introduction of a sanctions policy of high fines, naming and shaming, bans from competing and relegation to the lower semi professional leagues. 4. Internal Controls of: a. Code of conduct and ethics b. Whistleblowing c. Gifts and hospitality policy d. Separation of duties and job rotation

$*" "


Chapter 6: Conclusion

This research identified a variety of difficulties in defining both fraud and corruption. Both have difficulties in their interpretations. Fraud is an act that technically occurs before the theft is perpetrated. However, the difficulty lies in that the act of fraud is incoherent. Corruption is a subjective area. Bribery, which is form of corruption, could under certain circumstances be also interpreted as a gift. These complexities make it difficult to apply the definitions to the football sector. Corruption in football can occur when there is doping, match fixing and money laundering. It is important to have comprehensive definitions of fraud and corruption to cover these acts, in order to know what needs to be minimised and mitigated when developing counter-strategies. Therefore, further research is required in order to come up with definitions of fraud and corruption that can be agreed globally and thus be suitable for sociological and criminological studies. With ever more finance flooding into English football, more football clubs fall into debt. Coupled with the current economic recession, a debt-ridden football club does not represent a good investment. Yet rich benefactors, especially rich foreign owners, still buy these football clubs. These investments are attractive propositions for criminals who wish to launder their proceeds from criminal activities. Furthermore, criminals may receive an enhanced social status within the local community for saving their football club (which had been severely in debt) from collapse. In addition, most of the English Premier League football clubs are owned by companies registered in offshore secret tax havens. Therefore, it is difficult to verify who the true owners of the football clubs are or their source of wealth.

The use of tax havens is common in sophisticated money laundering

techniques. It is easier to buy a football club in England than in Europe. The reason for this is that English football clubs are usually limited or public limited companies and not supporter owned as in Germany. Therefore, further research is required into determining whether it is easier for criminals to launder their money in England than in Europe. Based on this research, the current strategies to counter football corruption and fraud are not effective. The problem lies with the lack of transparency. Although the Fit and Proper Persons Test is supposed to enhance transparency of the ownership of English football %+" "


clubs, the decision-making and operations of the Test are not transparent. Neither is the Fit and Proper Persons Test meeting its objective of protecting football clubs in all English professional leagues as there is evidence of fraudsters and corrupt individuals owning clubs. And the football regulators who operate the Fit and Proper Persons Test are not transparent either.

There are conflicts of interest, which may pose ethical problems.

Furthermore, football regulators may be not sufficiently resourced to properly investigate allegations of money laundering at football clubs and other forms of fraud and corruption. Further research into the football regulators’ complete fraud and corruption strategies, including a critical evaluation of their investigations and deterrence strategies would add to the knowledge base in this field. The International Federation of Association Football has introduced an education awareness programme about football corruption. further research is needed to test its effectiveness.

However,

The Union of European Football

Associations’ (UEFA) Financial Fair Play Rule will force clubs to operate their business to break even. This may restrict spending and thus deter criminals from laundering their money through football clubs. Further research is required to test the effectiveness of the UEFA Financial Fair Play Rule in preventing fraudsters and corrupt individuals buying football clubs who play in European tournaments, however. There are number of ways to prevent fraudsters and corrupt individuals from buying English football clubs. This research looked at introducing a counter fraud and counter corruption strategy which combined internal controls, investigations and deterrence. The internal controls of whistleblowing, codes of conduct or ethics, job rotation, separation of duties and a policy on gifts and hospitality would be vital components. However, this research focused on the first line of defence by suggesting the enhancement of the internal control of vetting. By drawing from research of strategies used to counter money laundering in the UK financial services industry, a vetting strategy could be implemented with a mixture of objective and subjective checks where all checks must be carried out. It is essential that identity of football owners is established through proper documentation. However, clubs must remain vigilant to possibility of receiving false identity documents. Forensic examination of accounts of the football club owner (or potential owner) must also be conducted in order verify the source of wealth.

There are additional honesty and

integrity checks that could be carried out as well as using the internet to gain further information about a potential club owner. However, it would be important to verify the potential allegations of fraud and corruption from these subjective checks through proper %!" "


research and face to face interviews. As organised crime is a global activity, secure and properly regulated data sharing with other football associations and law enforcements, nationally and internationally, will be key to enhancing the vetting control. It might be worth conducting further research into vetting strategies adopted in other sports sectors or other business sectors. Further research is also required to examine whether a supporterownership model would be a better one to help English football to prevent fraud and corruption. If fraud and corruption is identified, we recommend that it be investigated by a dedicated specialist unit. However, further research is needed to see if this should be provided by an independent body, the government or by the football regulator. There is the potential for this specialist unit to be funded (at least in part) by the proceeds of the crime they successfully investigate and by fines. Having a thorough vetting strategy might deter fraudsters and corrupt individuals from going through a Fit and Proper Persons Test. However, in order to implement an effective deterrent strategy, stronger sanctions are also needed. With the low prosecution rate of fraud and corruption and the perception that fraudsters and corrupt individuals are less likely to be caught, then it would be worth introducing high fines, naming and shaming, bans and relegation for clubs who knowingly take money from criminals. Further study into other types of sanction is necessary, especially for those who fail the Fit and Proper Persons Test. With the lack of transparency in the football sector, the risks of corruption and fraud at English football clubs are high. This paper is hopefully a positive step towards countering these risks.

%#" "


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The Management of Corruption and Fraud in Football in England