Money Smart Athlete Blog

Preventative measures to minimize the threat of money laundering in sports

Oct 14, 2020 | Special Themes

An interview conducted by Iacovos Iacovides with Lazaros Ioannou, CAMS

In previous editions of the MSA blog, we have addressed corruption in sports, but this month we have decided to narrow it down to a very specific type that we believe deserves special attention. Corruption comes in different forms and can be found on all levels of the sports world on a local, national, institutional and international level. One of the hottest topics today when it comes to corruption however, is of course Money Laundering. Not that it is necessarily new, but because of the evolution of Anti-Money Laundering legislation, the attention that the media gives to the phenomenon and a relatively newfound multilateral will to combat it have contributed to giving it a special type of status.

Despite the fact that sports are perhaps one of the most vulnerable and adored by criminals, industries for “investing”, relatively very little has been done towards equipping clubs and institutions with the necessary tools to root it out. Just to give a few examples; some of the most notorious drug lords in history including Pablo Escobar, the “Gentlemen of Cali”—Miguel and Gilberto Rodriguez—and Gonzalo Rodriguez Gacha all owned football clubs at some point or another. But it is not just criminals but other people whose involvement with club ownership can be described as suspicious at best, such as Silvio Berlusconi’s ties to AC Milan. Lazaros Ioannou a sports consultant and a Certified Anti-Money Laundering Specialist (CAMS) gives us his recommendations on how to tackle money laundering in sports

“As we well know, there are three stages in Money Laundering: Placement, Layering and Integration. The sport industry can be mainly used in the latter two phases” explains Ioannou. “Layering is the stage where the money is moved around, amounts are divided and sent to different directions so as to disguise the audit trail, while integration, the final stage of money laundering is essentially the phase where the laundered funds are ready for use; usually through purchasing luxury and high-value goods”.

The spectrum of reasons as to why money launderers find the sports industry appealing is very broad. For example, it could be seen as something of a long-term investment. “Some seek to benefit from the sales of players, merchandise, from media rights and so on, even if that means taking a financial hit in the short run”. Others might see it as an opportunity to improve their image and reputation. “It is quite ironic that money launderers use money illicitly acquired, for PR reasons”.

Currently, the oversight when it comes to the sports industry is minimal and superficial compared to other sectors. “We have started treating sports as just another industry, a market where economic incentives and competition prevail, albeit selectively. Because on one hand, football clubs for example, are being ran and behave like proper corporations, and yet in the context of money laundering, they do not have to abide by the necessary standards” according to Ioannou.

“The most basic and rational first step is to make all clubs Obliged Entities, something that Belgium has recently done”. That means that clubs will be supervised just like any other organization vis-à-vis money laundering. In other words, they will have to abide by certain standards and regulations just like all corporations do in the EU. Such measures include KYC policies, customer due diligence and so on. “Once you establish supervisory authorities for sports that will take all Anti-Money Laundering and Countering the Financing of Terrorism legislation that has been voted in the EU and tailor it to sports, then criminals will stop seeing the sports world as a money laundering hub. What they are taking advantage of right now is the absence of oversight and supervision. “We are not even making it hard for them right now”, Ioannou points out.

“Having mechanisms in place to establish the source of funds of someone seeking to get involved in club ownership, will go a long way in discouraging money launderers from even trying. Moreover, we need better supervision of counterparty agreements to make sure that one is not using his newly-acquired sport club to launder money (layering phase) and then buy marketing services let’s say from one of his other companies (integration phase) for ridiculous sums, because frankly, it will be extremely hard to prove that the money used were illicitly acquired, if you do not have the appropriate controls and powers to pin that money down the moment they enter the club, for investigation”.

The steps we need to take to identify and prevent the laundering of illegal funds in sports are simple and apart from some minor differences, they will be more or less the same as in other sectors and industries of the economy. However, we must ensure that any steps taken towards that direction are meaningful and substantial. We need to make sure that those who will be tasked with supervising sport clubs not only have a moral compass, but are also equipped with the institutional power and backing to execute their duties successfully.