European Parliament tackles professional football: 6th anti-money laundering directive to apply to professional football clubs, associations, and agents

By: Lindsay Nicholls

 The European Parliament recently confirmed its plans to encompass professional football clubs within the obliged entities captured under the 6th Anti-Money Laundering Directive (“6th AML Directive” or “the Directive”). From 2029 professional football clubs within the European Union (“EU”) will be required to verify their customers’ identities, monitor transactions (importantly, player transfers), and report suspicious transactions to their relevant Financial Intelligence Units (FIUs). Furthermore, football associations, and football agents operating in the European markets will also fall into scope.

This has been months in the making, with commentary surrounding the European Parliament’s plans to involve the world’s most popular (and profitable) sport in its next AML directive being a hot topic in European Parliament throughout 2023. The decision has not been met without resistance; in December 2023 talks between the European Commission, European Parliament, and the European Council (which represents national governments) were at a deadlock due to countries pushing back against the potential inclusion of football within the new legislation.

Football is not the only sector to be encompassed into the 6th AML Directive. Other sectors now include traders of luxury goods such as precious metals, precious stones, jewelers, and traders of luxury cars, airplanes, yachts and artwork. In this vein, it could be argued that there are similarities between these sectors and professional football, given that the buying and selling of a club or player is no different to the sale and purchase of a valuable commodity.

This change in legislation will require top-flight European football to take note and make changes to the way it carries out its financial operations, but what is the driver behind this move?

Red Card Offenses

Football, for many years, been linked to corrupt behaviour, including money laundering, bribery, fraud, and racketeering. From FIFA through to club-level, prominent individuals across the sport have charged with all of the aforementioned corrupt behaviours over the last 10 years, therefore, in a way, it is no surprise that there is a growing sentiment for professional football to have a watchdog with the ability to enforce financial scrutiny and transparency.

Further scandal in 2018 came to light when Belgian Authorities launched an investigation into money laundering, bribery, match-fixing, and fraud in Belgium’s Pro-Leagues. This resulted in the arrest of 29 people, including club officials, players, match officials, and agents. The investigation led to 44 addresses being raided, including club premises, by police in a nationwide investigation which also implicated individuals in France, Luxembourg, Cyprus, Montenegro, Serbia and Macedonia.

In 2021, an investigation by Al Jazeera unearthed how English football clubs can be bought by criminals to launder the proceeds of crime, using middlemen to hide monies and identities behind offshore trusts and submit fraudulent due diligence reports to English football authorities.

More recently, in 2023 Spanish giants, Barcelona FC, were charged with corruption, breach of trust, and false accounting regarding payments for millions of euros to companies linked to the former vice president of the Spanish refereeing committee. Further, in Italy in 2023, Serie-A giants, Juventus, were hit with multiple sanctions for financial irregularities and false accounting in relation to player transfer dealings.

These examples highlight how financial greed and malfeasance can quickly cause a rot at every touchpoint to the professional game and why authorities outside of the sport deem it necessary for additional oversight of financial activity.

Takeover Bids and Transfer Windows

Latest figures demonstrating the revenue generated in European football reported it to be worth €29.5 billion (this figure also includes the Premier League, which would not be subject to the sixth AML Directive due to the United Kingdom’s abstention from the European Union). This figure has increased annually, (apart from in COVID stricken seasons), which is arguably down to the changing landscape of investment into the modern game.

The injection of private investment into European football clubs has been prevalent over the past decade, whether through a consortium, private equity, venture capital, Sovereign wealth funds, or an individual with a personal interest in owning a club. It was reported in August 2023 that private capital funds 35% of football clubs in Europe’s top leagues.

Naturally when clubs receive an injection of investment and change of ownership, there is a tendency to show their intentions via spend on player power. Research over a 10-season period between 2013 and 2022 demonstrates a huge jump in transfer market investment from a 2013 spend of €2.74 billion to a spend of €6.19 billion in 2022.

Although the influx of new personnel can bring excitement and new prospects for a club, as the scandals implicating FIFA, Belgian Pro Leage, English Football League, Barcelona, and Juventus (to name a few!) has highlighted that without appropriate governance, control mechanisms, and sufficient independent financial scrutiny, criminality can infiltrate the world’s most popular sport at the highest levels and hide in plain sight.

The 4th Official

As recognised by the European Commission in 2022, criminals in the sports world are not always motivated by economic gain, rather, motivations are driven by “social prestige, association with celebrities, and the prospect of dealing with authority figures may also attract criminal investment.”

According to the United Nations Office on Drugs and Crime, an estimated $140 billion is laundered through football per year. This is not a new phenomenon, in 2009, the Financial Action Task Force (FATF), highlighted a number of areas by which financial criminality could occur such as the purchase and sale of football clubs, player transfers, agent activity, image rights, sponsorship agreements, and forgery of ticket sales. If we take player transfers, for example, clubs have been found to have sold players for a higher value than the official record reports. One of the most famous instances of this happening was the sale of Neymar from Santos to Barcelona. The fee was recorded to be €57.1 million, however, the true value of the transfer was over €80 million. Both Barcelona and Santos received fines for their involvement.

There are mechanisms already in place to assist in combating corruption and financial malfeasance in football, for example, FIFA and UEFA both have established regulations and guidelines in place to aid in the prevention of money laundering. Football Associations enforce penalties and sanctions for financial malpractice, including fines, bans, and expulsion from competitions, and assist by providing educational programs to clubs and individuals, detailing potential money laundering risks and preventative measures.

Some nations have implemented financial monitoring systems to track transactions and identify potentially suspicious activity. France has the long-established Direction Nationale du Contrôle de Gestion (DNCG), which was put in place to oversee the accounts of professional football clubs, assessing solvency, ensuring the books are balanced. Italy also has a supervisory commission dedicated to football clubs, COVISOC, which goes further than DNCG in its review of financial activity. In 2021, COVISOC passed a report to the Italian FA regarding suspicious transfer activity over a two-year period, which highlighted large profits had been made from player transfers when little or no money was in fact moved between clubs.

Although outside of the 6th AML Directives remit due to jurisdiction rule, the English Premier League also has an investigative function which has raised well publicised cases in the latter months of 2023. Sanctions were imposed on Everton due to a breach of profitability and sustainability rules, and a case was raised against Manchester City for failing to provide accurate information which depicts a true and fair view of its financial position.

As stated in an October 2022 report from the European Commission to the European Parliament, it is acknowledged that football has tried to bolster its legal framework to protect against financial wrongdoing, the framework remains inadequate in comparison to the risk.

It is evident that some professional leagues across Europe have tried to put measures in place to oversee the financial activities of clubs, but it is an inconsistent approach. Most are concerned with implementing and fulfilling the requirements of UEFA’s Financial Fair Play regulations, ensuring that clubs in the top leagues are not spending more than they earn, rather than investigating fund flows for potential corruption or criminality.

It has been recognised that a “one size fits all” approach to the implementation of the Directive’s provisions may not be appropriate when arguably there are four leagues operating within the EU that are streets ahead of the rest financially (La Liga, Bundesliga, Serie A, Ligue 1). As such, thresholds to aid “smaller clubs” have been adopted, allowing Member States to exempt clubs if they represent a “low risk”. In practice, these exemptions will only be applicable to clubs below the top leagues and with a turnover below €5 million over the course of 2 years.

Required Formation Changes

Although there is a five-year period until professional football clubs, associations, and sports agents within the EU are officially duty bound to comply with the Directive, it is imperative that they begin to understand the risk landscape, identifying weaknesses and gaps in their current processes which need to be addressed to ensure compliance.

What this means in practical terms is the review, assessment, and potential enhancement of the three pillars that EU AML legislation is pinned upon: internal risk management, customer due diligence (CDD), and suspicious activity reporting.

Clubs, associations, and agents will need to conduct an AML risk assessment, draft appropriate AML compliance frameworks which address the identified risks, and a create a function to maintain, review, and update the framework.

Further, CDD measures will also require review and enhancement, with obliged entities ensuring appropriate CDD measures are applied to business relationships and transactions in excess of €10,000. This is likely to apply to numerous fundings streams including TV, advertising, sponsorship, as well as merchandising and match-day sales. Clubs will also be required to identify and publish beneficial owners who own at least 15% of the club in transparency registers.

Lastly, clubs, associations, and agents will have to design and implement appropriate transaction monitoring procedures to identify suspicious transactions, as well establishing a process for reporting suspicious transactions to their relevant FIU.

Change of Backroom Strategy

The enhanced measures to be imposed by the 6th AML Directive appear somewhat onerous on the face of it, however, football is a multi-billion-dollar industry which unfortunately attracts bad actors who abuse the current frameworks for corrupt purposes.

Implementation of new processes and procedures do not come without cost, whether this is through operational implementation of new tools and personnel, or the administrative cost that is likely to occur by imposing more stringent checks and balances. However, given the consistent steam of financial scandal emerging from the sport in the last decade, positives should be taken from the European Parliaments acknowledgement that more can be done to address these well publicised issues and shortcomings.

Much like the banking industry suffering scandal after scandal, enforcement of heightened scrutiny was both inevitable and required in an attempt to stop the rot and provide a greater level of financial transparency across the game. The implementation of further external and independent oversight to address illicit funds, which appear to have found a safe haven in the beautiful game, should allow for the back pages to be dedicated and dominated by what is happening on the pitch, rather than being distracted by activity off the pitch.

Lindsay Nichollsan Associate Managing Director at K2 Integrity in London and lead of the sports practice within EMEA.