Risk of AML own goals from football transfers

08 September 2015

European football's summer transfer window closed last week.

Whilst clubs around Europe spent considerable sums, it was the Premier League which witnessed much of that spending. It is estimated that around £870m was spent by the 20 clubs who currently comprise English football's top tier (with an estimated net transfer spend of £460m).

The record transfer activity this summer will have surprised few fans (football clubs started on this inflationary trajectory some time ago), whilst confirming in the minds of many the concerns they already had about the direction in which the game is heading. However fans are not the only ones who should be worried: football presents an increasing and evolving AML and financial crime risk to financial institutions.

Over the past 25 years or so, TV money has driven much of the inflationary spiral in transfer fees and players' wages across Europe. In England at least that trend continued this summer. Premier league clubs have been able to pay huge transfer fees ahead of a massive TV deal that comes into effect next season. Whilst this money is not in clubs' pockets, the future revenue from this deal is secure (even for the relegated clubs). The money from TV deals does not of itself pose an AML risk, but it does serve to mask the money coming into football from other sources.

The relaxation of the financial fair play rules which European football's governing body (Uefa) had introduced in the 2012-13 season also probably played a role. The principal reason for the financial fair play rules was to prevent further clubs across Europe becoming insolvent, but the rules were also designed to try and prevent clubs (and their wealthy owners) from 'buying success'. The rules were supposed to ensure that clubs would be required to break even, and so would not become indebted, or be run at loss (being sustainable only through their owners' deep pockets). Whether or not this was actually achieved is very debatable. Certainly it does not seem that the game became 'fairer'. In any event, rule relaxation appears to have contributed to the record spending this summer and has allowed wealthy club owners to dip further into their resources to fund their club's activities.

For a long time football has (perhaps more than any other sport) reflected both the good and bad of society. Football has its villains as well as its heroes; it has its triumphs as well as its tragedies and scandals; and like wider society there are crooks who are happy to divert illicit funds through football. Financial institutions familiar with the business of football may have felt that they understood the risks associated with the game, but in the past two and a half decades the increasing flows of money into and within the game have radically altered these risks. These evolving risks have come at a time when the legislative requirements relating to AML and other financial crime for financial institutions have become far more onerous – with further change to be implemented by June 2017 as EU member states implement the Fourth Money Laundering Directive ((EU) 2015/849).

The recent investigations into corruption at the highest levels of football are a cautionary note to any financial institution involved with football. Fans have long expressed concerns with the standards of governance within the game and these allegations will have confirmed their long-held suspicions. It is to be hoped that financial institutions connected to the relevant individuals and organisations now under investigation have appropriately managed these risks by showing levels of skepticism similar to that shown by fans.

Financial institutions should also have been actively monitoring and managing the risks associated with the money that has recently come into the game. Expressions of concern about the integrity of some of the new owners (both individuals and corporates including state-owned entities) who have invested in clubs are not new. In particular, for some time, questions have been asked about the 'new' money that is being spent on clubs, as much comes from sources which are at best opaque. Even fans whose clubs have benefitted from the largesse of these new owners have wondered why individuals and entities with little or no historic or emotional connection with a club have invested such sums. If fans have their doubts as to the bona fides of some of these new owners, then it is probably not unreasonable to expect financial institutions to have also considered these issues.

The summer spending should have been heavily scrutinised by financial institutions involved in these transactions. The huge net spend by premier league clubs is indicative of the fact that money continues to flow into the game. Much of this cash will have come from entirely legitimate sources, but there is a lingering concern that some money has dubious origins. In each transfer, it was the responsibility of the relevant financial institutions to have asked the right questions to reduce the risk of that transaction being funded in whole or in part by the proceeds of crime. Unfortunately it is possible that amongst the exuberance of these deals some will have forgotten their responsibilities. Prosecuting agencies around the globe have been focusing on football recently. If these agencies turn their attention to the transfer market, such failings could prove costly.

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