In 2015, the U.S. Department of Justice indicted dozens of global soccer officials on charges of rampant bribery, money laundering, and widespread corruption. As the “FIFA fallout” continues, here’s what organizations can do to keep themselves honest, in good standing with the law, and free from corporate fraud.
The month before the 2014 World Cup was set to kick-off in Brazil, a Los Angeles journalist by the name of Ken Bensinger received a juicy tip from a colleague. According to the tipster, a top U.S. soccer official by the name of Chuck Blazer had defrauded the sport of more than $20 million dollars. Not only did the official deal in the wholesale bribery, but he apportioned 10% of almost every single dollar that came in—even hot dog sales, even on charity games.
Bensinger did some digging, confirmed the rumors, and published his wild, investigative story for Buzzfeed News. The story went viral, and quickly uncovered a rabbit hole of obscene corruption that reached nearly every region of the global sport, from the bottom to the top. Although international FIFA officials were always suspected of rampant fraud, Bensinger’s story was the first to reveal that the culture of crime had undoubtedly reached U.S. shores.
A year later, with the help of a cooperating Blazer, the U.S. Department of Justice indicted the first of dozens of FIFA officials on organized crime charges of racketeering, bribery, money laundering, and fraud. That seismic event lead to Bensinger’s groundbreaking and riveting book, Red Card.
I recently spoke to Bensiger about the fallout and what companies can learn from the largest sporting scandal in world history. And although few, if any, legitimate businesses operate as organized crime syndicates like FIFA often did, Bensinger was quick to diffuse the proximity.
“It was organized crime, but the corruption case also involved several legitimate businesses,” Bensinger says. “Sports marketers, big broadcasters, and sponsors such as Coca-Cola, Sony, and McDonald’s, the latter two which even canceled their contracts with FIFA as a result.”
Although the case continues, Bensinger says he’s learned several lessons after investigating and reporting on the scandal for over two years. The first may seem like a no-brainer, but it bears repeating.
- Cleaner organizations make more money. For both FIFA and its bribing television rights resellers, each traded higher revenues in exchange for personal greed. For the former, they earned far below market value after accepting bribes and agreeing to non-competing contracts. For the latter, “many had literally bribed themselves into insolvency,” Bensinger says. In opposite terms, a sinking tide lowers all boats.
- Question positive results before accepting them. In one example, the board of directors in the North America and Caribbean region of FIFA simply signed off on the cooked and bribe-filled books every year in spite of rising revenue. They didn’t ask questions, blindly accepted the results, and weren’t willing to take a hard look at how the numbers were improving as well as they were, Bensinger says. “In short, they allowed the cozy and friendly fraternity to get the best of them, despite their advanced degrees in accounting, management, and economics.”
- Changing a compromised culture is hard. As the U.S. government found out after first attempting to bring down the mob, “No sooner did you bust one generation of crooks than you were chasing after the ones that came up behind them,” says Bensinger. In that regard, FIFA was no different. The underlings wanted their cut of the bribes once the house-cleaning of the top happened. Greed begets greed. Bad behavior begets bad behavior. Unlike the mob, however, the goal of the FIFA case (or any corrupt business, for that matter), isn’t to terminate the organization. “You have to find a way to kill the cancer without killing the patient,” Bensinger says. “You have to be surgical in your scope and with your cuts.”
- The issue is complicated for underprivileged societies. Corruption, bribery, and underhanded business dealings are more prevalent in societies with failed states or a lack of trust for institutions, argues Bensinger. “In those cases, people often ask what’s best for them as individuals rather than conforming to what’s best for the greater good of society,” he says. Once the “get mine” mentality takes root, it’s hard to make a clean break.
But it can be done.
The average company loses 5% of annual revenue to fraud, reports The Association of Certified Fraud Examiners. Although the majority of fraud happens in small businesses with fewer than 100 employees, total estimated losses in America alone are well over $1 trillion annually, so there’s a big economic incentive to root out corporate fraud.
How can this be done? Here’s a rundown of some of the best ways organizations can prevent, avoid, and ultimately clean up white collar crime:
- Know where the temptation lies. According to The Association of Certified Fraud Examiners, the majority of fraud takes place in banking, government, and manufacturing institutions. The most common bad behaviors include asset misappropriation, corruption schemes, and financial misstatements, and the most common personnel involved include accounting, operations, sales, and upper management professionals. While other industries and departments are in no way immune to corruption, there’s nothing wrong with focusing on the usual suspects.
- Empower your employees. Give your board of directors oversight and your compliance officers teeth. Train managers and underlings to recognize behavioral warning signs. Moreover, create an anonymous and well publicized reporting (or tip) system for employees, vendors, and customers. “Rather than turning a blind eye or having no outlet to report superior abuses, interested organizations must adopt an easy-to-use tip system,” one expert said. Obviously this could be abused in isolated instances—the goal is to catch a trend of misbehaviors so you can nip it in the bud before it becomes an even bigger problem. All in all, you must encourage, support, and even incentivize a culture of honesty.
- Adopt internal controls to safeguard company assets. That always includes the reconciliation of bank accounts every month, rather than quarterly, annually, or heaven forbid never (as was the case with FIFA). It also includes the use of outside and independent auditors and fraud examiners on an annual or suspected basis, and the checks and balances (or segregation of duties) so no one employee has too much control or power over a single area or large budget (aka “ethics” or “accountability buddies”). Furthemore, it might also include data monitoring activities to alert compliance officers and oversight committees to suspect anomalies.
- Instead of ethics, teach federal sentencing guidelines (instead of ethics). People make better decisions when they clearly understand the consequences. In fact, one seasoned judge reported that the fear of prison “has a mighty deterrent effect” on white collar crime. But since many white collar executives feel above the law, the prison consequence and ramifications of corporate fraud must be clearly communicated and understood rather than simply implied as is often the case at many companies today.
The Final Word
As with all areas of life and business, failing to plan is planning to fail. The same is true for preventing, avoiding, and/or changing a culture of corporate fraud.
Surprisingly (or perhaps unsurprisingly for any who have closely followed the organization), FIFA recently and confusingly chose to strike the word “corruption” from their new code of ethics and made it even harder for future whistleblowers to snitch on their colleagues, Bensiger reports. “They’ve taken some positive steps but also some negative ones in terms of embracing more transparency.”
And that’s really what it all boils down to—transparency. In order to make more money or impact more people as a clean organization, you must commit to letting the light shine in the sometimes dark or obscure corners of your organization.
The good news: knowing is half the battle. Now you know. ●
About the author: Blake Snow writes for fancy publications and Fortune 500 companies as a seasoned writer-for-hire and award-winning author. He lives in Provo, Utah with his loving family and loyal dog. This story was written for PwC, one of the world’s largest accounting firms.