Magazine article Risk Management

Lessons from the FIFA Corruption Scandal

Magazine article Risk Management

Lessons from the FIFA Corruption Scandal

Article excerpt

Soon after the U.S. Department of Justice unsealed the indictments of 14 officials from FIFA, soccer's international governing body, on charges of wire fraud, racketeering and money laundering, it became clear that the scandal is likely to be one of the highest-profile corruption cases in sports history. Not only does it involve charges that at least $150 million in corrupt payments were made to FIFA officials, but it is centered on a sport that is followed avidly by more than two billion fans around the world. Preparation and hosting of FIFA World Cup tournaments typically lead to billions of dollars of infrastructure expenditures and can have a dramatic impact on local economies.

For those in risk management, audit or compliance, however, the FIFA scandal is not particularly surprising. The risks of a failure to comply with legislation, such as the Foreign Corrupt Practices Act or the U.K. Bribery Act, have been well recognized, with large fines and penalties regularly imposed by regulatory authorities. While acts of corporate bribery, fraud and corruption are nothing new, FIFA has sustained massive damage to its credibility and reputation worldwide. What can other organizations do to ensure they are minimizing the risk of suffering similar damage?

DETERMINING THE EFFECTIVENESS OF INTERNAL CONTROLS

In the opening pages of FIFA's 2013 financial report, under a photo of beleaguered FIFA President Sepp Blatter, it prominently states: "We have reached very high levels of accountability, transparency and financial control." Given the current charges, this statement seems ironic, but assuming that FIFA actually has a good system of internal controls for all of its operational and financial systems, how did this scandal come to be? Something was obviously amiss in FIFA's governance, risk management and compliance policies.

One of the greatest challenges for risk managers and auditors can be dealing with ethical failures and criminal behavior among senior management. The FIFA scandal is a reminder that companies can have the best mechanisms for addressing nearly all of their operational and financial risks and still manage to overlook high-level internal corruption.

GETTING SERIOUS ABOUT CORRUPTION

Another issue risk managers should be aware of is the shifting perception of bribery and corruption in the business world. A few decades ago, bribes and corrupt payments were the norm in many industries and countries. The United States took the lead in changing the status quo by enforcing the Foreign Corrupt Practices Act and imposing large fines on high-profile companies. The recent FIFA arrests are further evidence of its willingness to stamp out corrupt practices.

The United States is not the only nation to get serious about corruption. In China, for example, where bribery and corruption among senior government officials were rampant for decades, the general secretary of the Communist Party began a far-reaching campaign against corruption over the past two years, ultimately leading to dire penalties for many high-ranking officials.

Globally, there appears to be growing recognition that corruption causes real net damage to society. …

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