FIFA top brass: likely guilty, but conviction is a different issue

All intelligent observers who knew the case were convinced that O.J. Simpson did it – that is, he brutally murdered his wife and her partner. The same goes for Oscar Pistorius – it was premeditated murder and he knew it was Reeva inside the bathroom. But this isn’t the same as a successful conviction, which depends on the whims of judges and juries, the public relations skills of the accused and his defence team, and finally the lofty legal threshold of “beyond reasonable doubt”. So both O.J. and Oscar were acquitted of the murders they committed, even if being convicted of lesser charges in the latter’s case, and having to shell out big-time bucks in the former’s civil case.

So too it might be with Sepp Blatter and his senior cronies like Jerome Valcke and Jack Warner. It seems inconceivable that Blatter didn’t know of the corrupt payments going on under his nose. Most likely he himself and his family have been major beneficiaries of them. The intelligent and informed in society know this already. But that doesn’t mean it will be possible for US and Swiss prosecutors to achieve convictions. Proof is difficult to show, the world is full of conceivable room for uncertainty, and the accused and to-be-accused’s PR machines are already whirring. Hence the recent photos posted online of Sepp and Jack hard at work at their desks, respectively “working on needed FIFA reforms” and “representing my Trinidadian constituents”.

FIFA has been an ideal structure for enabling the theft of millions of dollars by its key insiders. In its 2011-14 financial report – audited and happily signed off by KPMG, it’s worth noting – FIFA reported revenues of $5.7bn, 43% of which were from TV rights, 29% from marketing, and the remaining 28% from licensing and other activities. The majority of these revenues in each four year cycle apply to the World Cup itself. Such forms of revenue are a perfect target for corrupt practices: no tangible costs of sales, no tangible goods, no tangible breakdown of sales. It helps all the more when the insider who heads the audit and compliance committee, Domenico Scala, lists (in the same 2011-14 report) compensation policy, a transparent presidential election, and proper control of expenditures as his three job priorities – neglecting to mention anything about controls over the revenue process.

Spending by FIFA over the same 2011-14 period was $5.4bn, 72% of which was invested directly in football – $2.2bn for the recent Cup in Brazil, but the majority of $3.2bn in smaller-scale programmes all over the world. In 2014 itself there were $509m of “development related expenses”, of which unspecified “extraordinary” items were $261m (page 113, same report). Such a large spending component – the $3.2bn – in small-scale projects, most in the developing world, is again an ideal tableau for corruption to flourish within.

We already know about Jack Warner’s presumably spoiled sons crisscrossing the US, clumsily depositing euros in multiple bank accounts that sometimes exceeded the $10,000 reporting threshold, and Chuck Blazer’s deposition to the US authorities. More salacious details will emerge. Whether it is enough to successfully convict, time will tell. Sepp should probably hunker down, keep working the PR, and take stay-at-home holidays.

To reform itself, FIFA should follow the template provided by the International Olympic Committee’s reforms following that body’s 2002 Salt Lake City scandal. The most important of these reforms would be: (a) strict term limits for top FIFA executives; (b) a fully independent, wide-ranging audit and ethics committee, staffed by respected titans: the IOC had Kissinger, perhaps from January 2017 FIFA can have Obama (unlikely, but that’s the level to aim at); and (c) sensible rules prohibiting ad hoc contact between national World Cup bidding teams and the FIFA executive board.

Cleaning up FIFA now is very much in tune with the times. There is further global progress afoot in combating money laundering and tax evasion, following much enhanced “know your client” disciplines practiced by banks over the past five years. The OECD and G20 – together consisting of some 42 leading nations – have spearheaded the adoption of a new global standard called the Automatic Exchange of Information (AEOI). 126 tax jurisdictions have signed up to this, which will, starting in 2017/18, provide for the automatic exchange of non-resident financial account information with the tax authorities of the person’s country of residence. Its reporting format is similar to FATCA, the US system already set up concerning US citizens’ overseas accounts. The Americans are central to all this – as in the FIFA example – because most cross-border corruption involves the use of US dollars, any bank transaction in which has to be cleared through the US banking system. By including 42 leading nations and ultimately 126+ nations into this clampdown, the net is becoming a formidable one for those in search of safe money trails for illicit funds.

And where is Vietnam in all this?

Vietnam is in the minority that is not one of the members of AEOI. Presumably it would be too unpalatable for the names of influential Vietnamese politicians with foreign bank accounts to accidentally find their way into the public sphere of knowledge, or even into loyal swordbearing Vietnamese tax officials’ knowledge. All the more so, given the continued inability of ordinary Vietnamese to even have a dollar bank account at home, let alone abroad. By way of comparison, big neighbour China is an AEOI member, as are most Asian countries; other nearby non-members are Myanmar, Laos, Cambodia, and Bangladesh. The relevance of Vietnam’s non-membership is very much to powerful Vietnamese citizens’ accounts held abroad, rather than any foreigners’ interest in Vietnamese accounts, given the complexity of opening accounts in Vietnam and the capital controls in place there.

We urge Vietnam to join AEOI. It would represent an important move in a drive to try to eradicate corruption in the country, an admirable goal should the government ever wish to take it on, rather than just mumbling predictable and ineffectual platitudes on the subject, which has been its form to date.

The next step, yet to be seriously addressed, would be a global effort to make underlying beneficial ownership of all accounts, assets, and businesses held under company or front names freely and automatically available for viewing by all people on earth with an internet connection. At first this might sound hopelessly idealistic, but is it really? Surely it represents simply the next logical measure beyond AEOI. Shining the bright lights and taking away the shadows is by far the best means of reducing tax evasion and money laundering – much more, say, than raising the allocated department budgets of national tax authorities. Happily for the global majority, the options for protecting corruptly obtained money are becoming fewer and fewer. The global banking system is becoming very transparent indeed. There are ever fewer places to hide.

Mekong Man

Greece: In defence of stereotypes, calling bluffs, and being cruel to be kind

So the great Greek drama is reaching the end. At least it might be the end – on second thoughts, rather like a compelling Netflix, ITV or ARD serial, maybe it will be extended to more seasons, even when it really shouldn’t.

What conclusions are we to draw? Three:-

1) It’s been a good crisis for stereotypes. The Germans have supported theirs well with their plain-spoken firmness of economic principle, and an appearance of stubbornness and solidity of character. The Greeks have too: they’ve been shifty, unreliable negotiators, and definitely not the sort of people one feels like lending more money to and expecting to sleep well during the term of the loan. Even the British have upheld theirs: opining in a grandiloquent way on a matter that they have no involvement in, as if it’s the nineteenth century and they rule most of the world. And as for the Americans, their comments have often suggested less comprehension of the issues than their global power would reasonably correspond to – spot on with the cliché. Again true to image, the Greeks seem more fun than the Germans: would you rather have a Friday night evening of wine on Varoufakis’s famous terrace with him (with or without his glamorous partner) or one with Mutti Merkel (as Germans affectionately call her)? It is very politically incorrect in the twenty-first century to use or defend stereotypes, but the Greek saga shows their usefulness. Stereotypes, after all, exist in the first place because enough people over time have noticed traits that are often exhibited by certain kinds, groups, or nationalities of people. It would be most unfair to pre-judge an individual based on which group he or she is from (herein lies a massive problem, because so many people do just that), but the generalisation and therefore stereotype about the group doesn’t seem all that unreasonable. It shouldn’t be relied upon as cast iron predictor, but nor should it be consigned to the rubbish tip as amoral fiction.

2) Too much of the media has bought the Greek dupe that a default by Greece will imperil the whole European Union. What nonsense, is the view from here. Greece, with $238bn or so in 2014, accounts for less than 2% of eurozone GDP, and cannot be said to be of central importance in any way economically, apart from the fact it owes a lot of money to others. But its public sector debt of 177% of GDP or €317bn (year-end 2014, Eurostat), if it is not repaid, is not going to break Europe, European banks, the IMF, ECB, or anyone else. A hole of €317bn, should it not be absorbed successfully by all creditors, at the end of the day simply amounts to less than six additional months of Mario Draghi’s QE programme. Lehman Brothers’ and AIG’s defaults were each far more important to shattering confidence in the global financial system: these were systemically important institutions operating at the heart of this system.

To the contrary, the real threat to EU integrity would be a cave-in by the Eurogroup to Greece. This could critically weaken Spain’s, Portugal’s, Italy’s, and even France’s reform-mindedness, leading to markets brutally retesting these economies, with highly uncertain results.

3) If the Greeks are not serious enough about root-and-branch economic reform, cut them off from any further policy maker loans. This will quickly lead to default, but MM still wonders whether this immediately and inevitably leads to Greece’s exit from the common currency, as is universally taken as fact in the media to date. Is it not conceivable, via the ECB exercising its recently-granted role of eurozone banking regulator, for it to bring the insolvent Greek banks under its administration and arrange for their recapitalisation under new ownership? There wouldn’t be much of a Greek-owned banking system left, but so what?

Isn’t this a cruel approach? Well ostensibly yes, but in practice no – actually it is the best solution for both Greece and Europe. A Greek default would shut it out of the international capital markets for at least a couple of years, or until it demonstrated a newly rigorous approach to managing its public sector, whichever was longer. This period of being shut out would necessitate running a consistently balanced state budget – which would itself amount to rigour, but a self-imposed and unavoidable one. This would be painful, but Greece would be putting itself onto a sustainable economic path, helping its chances for long term economic growth. To sum it up, if the eurozone doesn’t say it to Greece first, Alexis Tsipras should this week tell Merkel and Draghi: “We hereby opt to default on our debts, and stand on our own two feet by running a balanced budget, with neither the burden of any interest payments nor the recourse to any further debt financing. We also hereby give notice that we will in no way obstruct the ECB from exercising its mandate to oversee the winding up and recapitalisation under any new ownership of Greek banks. We will retain our use of the euro.” Greece would lose its domestically owned banking system (or most of it), but it would be replaced by a foreign owned one: who has any proof that this is bad in any way for Greece’s economic future? To the contrary, most likely.


Postscript: How can this be related to Vietnam?

At less than 50% of GDP, Vietnam’s external debt to GDP is far from Greece’s 177%. However, Vietnam’s debt ratios have been rising in recent years, both its external and its government one. The latter – which counts government debt to both internal and external creditors – will be around 64% of GDP by year-end 2015, when including government-guaranteed debt. There is also an only sporadically reported additional amount of state owned enterprise debt, which might bring the total public sector figure to as much as 100% of GDP. This latter figure is higher but not so different to that of the US, France, or the UK.

Regarding the external debt, the majority of it is in the form of policy loans by the World Bank, Asian Development Bank, and the government of Japan, with highly concessional rates of interest. Vietnam’s policy lenders are softer and more generous than is the case for Greece with the eurozone and the IMF.

As we have seen with Greece, easy debt can lead to bad debtor behaviour. This risk of course applies to Vietnam too, but perhaps in Vietnam’s case there is the advantage of (a) being East Asian and not southern European, and therefore benefiting from (the stereotype of !) a better work ethic and a greater inherent seriousness about achieving sustainable economic growth; and (b) the knowledge that a default by Vietnam would lead to creditor intrusion and/or public revolt, thereby posing a vital threat to the one party state.

Vietnam needs improvement in its management of public finances, but the good news is that (a) things are not at a level that is yet out of hand; and (b) there appears to be a relatively keen internal appreciation of the situation and a desire among a wide range of policy makers to improve it.

Mekong Man