I am back from a lovely week in Venice, with my new Matt Kelly imposed nickname of ‘FCPA-nerd’. One thing is certain when you go on vacation, the world of international bribery and corruption will continue unabated. Last week the World-Anti-Doping Agency (WADA) released its second part of a two-part report on bribery and corruption and now blackmail at the highest levels of international track and field. In its first report, issued in November 2015, WADA detailed the widespread and systemic doping at the highest levels of sporting federations in Russia. It was so pervasive as to be considered state-sponsored doping. Russian track and field was suspended from global competition and the country’s participation in the 2016 Rio Olympics is in jeopardy.
However after reviewing the findings from the second WADA report, issued last week, you have to wonder if the entire international sports world is the most corrupt group of entities around. The nefariousness of the leadership Fédération Internationale de Football Association (FIFA) is well known in both anti-corruption and anti-money laundering (AML) circles. Many of its regional association leaders have come under Justice Department scrutiny or Justice Department indictments, in the levels below the FIFA Board and corruption has become their bête noir. The second WADA report on the antics of the leadership of the International Amateur Athletics Federation (IAAF) moves from farce to the absurd.
WADA accused high-ranking IAAF officials of not only accepting bribe payments to cover up positive drug tests but also shaking down and blackmailing athletes who senior officials knew had failed drug tests. The reported named names beginning with the former President of the IAAF Lamine Diack, his two sons, his former legal advisor, Habib Cissé and the former director of the IAAF’s anti-doping division, Gabrielle Dollé. According to an article in the International New York Times, entitled “High Level Corruption in Athletics Alleged”, Rebecca R. Ruiz wrote, the WADA report “raised new questions about how compromised sports officials can be in investigating and disciplining doping violations, calling the corruption embedded in the organization.” The report stated, “It cannot be ignored or dismissed as attributable to the odd renegade acting on his own. It is increasingly clear that far more I.A.A.F. staff knew about the problem than has currently been acknowledged.”
Indeed after reading the report, it makes the conduct of former FIFA officials appear to be rank amateurs in the corruption scale. At this point the only saving grace for the IAAF is that it is being headed by one of the most respected people in the world of international track and field, Lord Sebastian Coe. Coe has won two Olympic Gold medals, been a member of the House of Commons, accepted a Life Peerage and a Board member of the IAAF. However, it could be that his prior work in the IAAF may taint him too greatly to be able to make the changes needed.
One of the authors of the report, WADA President Dick Pound, said that the cheating had affected the outcome of competitions. For any fan of track and field this is reason enough to be very concerned. Yet Pound also noted the corporate governance issues in play when he was quoted as saying, “It’s not just a bunch of people sitting at a table passing money to each other. You’ve got to have 21st century governance even if it’s an organization that’s 19th century in origin.”
This final statement points to the greater business reason for a compliance and ethics program. You begin with a process, which is committed to by top management and then expressed in a Code of Conduct and written policies and procedures. Next you have a person in charge of the compliance and ethics program who has real authority and real traction inside the organization; usually called a Chief Compliance Officer (CCO). The CCO either leads or effects training on the written policies and procedures, evaluates the effectiveness of the training and incentivizes the compliance program throughout the organization. You should manage your third parties, utilize compliance in your mergers and acquisition (M&A) process and monitor and evolve your compliance program going forward. All of this is done with multiple levels of oversight culminating with the Board of Directors or appropriate committee of the Board.
Yet there is another level that both the IAAF and FIFA were sorely missing, which was the checks and balances required in any best practices compliance program that form the basis of compliance. While some of these checks and balances are in the form of multiple internal levels of oversight, such as a Compliance Committee, which might be made up of senior managers from various disciplines; another level is brought about by internal controls and the concept of the segregation of duties (SODs). Here no one person should be allowed have so much discretionary power that they can approve vendors, approve contracts; then approve invoices for payments on those same vendors and contracts they have previously approved.
In the corporate world this is fairly standard in the US but there continues to be Foreign Corrupt Practices Act (FCPA) enforcement actions, emanating from outside the US, where a Country or Regional Manager can make such multiple approvals. This is not only a recipe for disaster financially but also allows the creation of a pot of money to pay a bribe much easier. Internal controls also work towards having continuous oversight, if a technology solution is used it can facilitate the both the prevent and detect prongs of a best practices compliance program.
The lesson for the US company which does not have a compliance program in place is that the basic forms of corporate governance are not only mandatory for a compliance and ethics regime but they are also the basics for any minimums of corporate governance in the 21st century. The level of any fraud, including bribery and corruption under the FCPA can be low, yet the attendant costs can be far in excess of any fine or penalty. For FIFA and the IAAF, their cost of bribery and corruption will be played out in the international press and court of world public opinion for some time to come. For the former heads and senior members of those organizations, the cost may well be more pedestrian, with jail terms for felony criminal violations.
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