PART II: LITIGATION
(See PART I: BACKGROUND & THE INDICTMENT from) last week.
In reviewing the initial indictment, the common thread and what U.S. Prosecutors have hung their proverbial hat on, are the charges of racketeering and conspiracy to commit racketeering. To prove charges of racketeering under the RICO Act, U.S. Prosecutors show (1) conduct (2) of an enterprise (3) through a pattern of (4) racketeering activity. Under the Act, an enterprise is defined to include any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact, although not a legal entity. Prosecutors have alleged that such ‘enterprise’ was derived from commercialization of media and marketing rights associated with soccer events and tournaments. These activities were allegedly done through various media deals concerning their flagship tournaments (World Cup and Gold Cup).
Prosecutors further alleged that the conspiracy to commit such activities began as early as 1991, when the defendants and their alleged co-conspirators ‘corrupted’ the enterprise by engaging in various criminal activities, including fraud, bribery, and money laundering. Most of these schemes mentioned in the initial indictment focused on and around sports marketing executives associated with the media rights of the following tournaments: FIFA World Cup qualifiers in the CONCACAF region, the CONCACAF Gold Cup, the CONCACAF Champions League, the jointly organized CONMEBOL/CONCACAF Copa América Centenario, the CONMEBOL Copa América, the CONMEBOL Copa Libertadores and the Copa do Brazil, which is organized by the Brazilian national soccer federation (CBF).
In looking at the parties, they can be divided into three primary categories: soccer officials acting in a fiduciary capacity within FIFA and one or more of its constituent organizations; sports media and marketing company executives; and businessmen, bankers, and other trusted intermediaries who laundered illicit payments. For your convenience I’ve listed the 14 defendants and their professional statuses below:
1. Jeffrey Webb: Current FIFA vice president and executive committee member, CONCACAF president, Caribbean Football Union (CFU) executive committee member and Cayman Islands Football Association (CIFA) president.
2. Eduardo Li: Current FIFA executive committee member-elect, CONCACAF executive committee member and Costa Rican soccer federation (FEDEFUT) president.
3. Julio Rocha: Current FIFA development officer. Former Central American Football Union (UNCAF) president and Nicaraguan soccer federation (FENIFUT) president.
4. Costas Takkas: Current attaché to the CONCACAF president. Former CIFA general secretary.
5. Jack Warner: Former FIFA vice president and executive committee member, CONCACAF president, CFU president and Trinidad and Tobago Football Federation (TTFF) special adviser.
6. Eugenio Figueredo: Current FIFA vice president and executive committee member. Former CONMEBOL president and Uruguayan soccer federation (AUF) president.
7. Rafael Esquivel: Current CONMEBOL executive committee member and Venezuelan soccer federation (FVF) president.
8. José Maria Marin: Current member of the FIFA organizing committee for the Olympic football tournaments. Former CBF president.
9. Nicolás Leoz: Former FIFA executive committee member and CONMEBOL president.
10. Alejandro Burzaco: Controlling principal of Torneos y Competencias S.A., a sports marketing business based in Argentina, and its affiliates.
11. Aaron Davidson: President of Traffic Sports USA Inc. (Traffic USA)
12. Hugo Jinkis: Controlling principal of Full Play Group S.A., a sports marketing business based in Argentina, and its affiliates.
13. Mariano Jinkis: Controlling principal of Full Play Group S.A., a sports marketing business based in Argentina, and its affiliates.
14. José Margulies: Controlling principal of Valente Corp. and Somerton Ltd.
Aside from the initial indictment release (United States v. Jeffery Webb, et al), US Prosecutors released a multitude of other complaints against FIFA officials, former FIFA officials, US sports marketing companies, and foreign nationals with their respective companies associated with the scandal. For this writing, I will focus on two cases that have been decided thus far – United States v. Jose Hawilla, et al and United States v. Napout, et al.
United States v. Hawilla, et al
The US brought charges against Jose Hawilla, Traffic Sports USA, Inc., and Traffic Sports International, Inc., for wire fraud, money laundering, and racketeering. As way of a little background, Jose Hawilla was a 1970s TV broadcaster until he used his close connections within the CBF (Brazilian Football Confederation) to buy a small-time billboard company in 1980. He went on to build it into one of the world’s biggest sports marketing agencies – Traffic Group. Traffic Group is now a multinational sports marketing company based out of Sal Paulo, Brazil. At the time of the indictment, it had a U.S. based office out of Miami, Florida after it acquired a local sports agency and rebranded it “Traffic Sports USA” as a wholly owned subsidiary. Traffic USA operated as a sport event management company that organized various soccer events including CONCACAF's FIFA World Cup qualifying matches, CONCACAF Gold Cups, the CONCACAF Champions Cup, the Under-17 CONCACAF Regional Championship, the Central American (UNCAF) Nations Cups, the Central American (UNCAF) Club Champions Cup, and other friendly matches.
At the head was Aaron Davidson, one of the original defendants named in the first indictment in 2015. As President of Traffic USA and a licensed attorney, Davidson was chief negotiator for a majority of the marketing right deals such as the 2012 CONCACAF Champions League series, the 2015 Gold Cup, and the 2018 and 2022 World Cups. He is also credited with spear-heading the revamp and operation of the North American Soccer League (NASL), when he convinced 8 United Soccer League (USL) teams to leave to create the league. In the beginning stages of NASL, Traffic USA acted as the league’s bank and primary investor. It provided the league with nearly $4.5 million in capital contribution as well as owning the majority (66%) of Class B stocks, where it possessed veto rights based on its risk. This was allegedly to control its return on equity and the return of its equity. Further, Traffic USA allegedly earned 30% commission on all commercial rights of media, sponsorships, and merchandise stemming from NASL. If investing in corporate rights was not enough, the US agency had ownership interests in individual teams at one point.
Switching gears back to the meat of the complaint, US prosecutors refer to a few specific instances in which these defendants along with unnamed co-conspirators, agreed to engage in “multiple schemes, including schemes involving the offer, acceptance, payment, and receipt of undisclosed and illegal payments, bribes, and kickbacks” concerning high profile soccer events. Further, Prosecutors go through painstaking effort to detail each “scheme” involving various soccer tournaments involving Traffic USA and Traffic International as far back as the early 1990s including wire transfer details, timeline table graphics, previous litigation settlements that allegedly resulted in exclusive media right deals, and so on. In reviewing the complaint, US Prosecutors drop subtle and not so subtle hints at who the co-conspirators may be. A fair-weather fan such as myself, was able to crack the code after a few trips down “Google” lane. One of these individuals is imperative to the first instance I will discuss: Enrique Sanz de Santamaria, former VP of Traffic USA turned general secretary of CONCACAF, replacing Chuck Blazer.
In a scheme between CONCACAF and Traffic USA for the 2012 Gold Cup and Champions League series media rights, Sanz allegedly solicited a $1.1 million bribe from Traffic USA, under the direction of another originally named defendant, Jeffery Webb, CONCACAF’s then president. In 2013, upon approval from Hawilla and Davidson, the agreed upon amount was wired to Webb through Traffic USA’s bank account in New York to Panama. This arrangement allegedly continued for the subsequent Gold Cup and Champions League series resulting in nearly $2 million in kickbacks in exchange for future media rights.
In another scheme referenced in the complaint, Davidson was individually charged with orchestrating $5 million worth of bribes through Traffic Sports USA in early 2015. He specifically faced separate charges of racketeering conspiracy – which included honest-service wire fraud, money laundering conspiracy, money laundering, interstate and foreign travel in-aid-of-racketeering, and obstruction of justice – concerning multiple bribery schemes involving CONMEBOL and CONCACAF tournaments.
Unlike the Napout case in which we will discuss later in this post, each named defendant here has pled guilty. Davidson, whom had initially pled not guilty, entered a changed plea in October of 2016 in which he conceded to not only making bribe payments, but going so far as admitting to falsifying invoices to legitimatize transactions. Davidson’s sentencing hearing is scheduled for April 8, 2018 at approximately 10:00 am according to court documents. In addition to facing a few decades in federal prison, Davidson has 90 days post-release to convince a referee from the Attorney Grievance Committee for the First Judicial Department why a final censure order, suspension, or disbarment should not be handed down.
Following its guilty plea, while corporation documentation still exists with the Florida secretary of state showing active status, there is reason to believe Traffic USA has for all intents and purposes has shut down. One month following the complaint’s release, FIFA “provisionally suspended” Enrique Sanz de Santamaria, CONCACAF’s general secretary whom is thought to be the undisclosed individual mentioned in the complaint, from all soccer-related activities. Following FIFA’s lead, CONCACAF placed Sanz on “indefinite leave” where he was eventually fired from his position in August 2015.
United States v. Napout, et al
Turning to another derivative case of the FIFA scandal is United States v. Napout, et al. This case was heard nearly two years following the indictment release, in the United States Eastern District Court of New York as the first jury trial to commence since the scandal broke. On trial before U.S. District Judge Chen are Manuel Burga, former president of Peru’s soccer federation; Jose Maria Marin, former president of Brazil’s soccer federation; and Juan Angel Napout, formerly president of South American soccer governing body CONMEBOL and Paraguay’s soccer federation. These men were accused of accepting bribes and kickbacks in connection with the sale of media and marketing rights to Copa America and Copa Libertadores tournaments, international competitions organized by CONMEBOL. During its opening case, U.S. Prosecutors referred to cash drops, ‘bag men’ and efforts to obstruct justice. According to Prosecutors, Napout accepted bribes in cash; Marin received them in a New York bank account; and Burga accepted promises of future payments. Alternatively, in the case of the defense, various attorneys for the defendants attacked the broad and ‘ambitious’ nature of the allegations as well as attempting to paint their clients as bystanders. None of the defendants took the stand in their own defense. According to court documents and local reports, none of the defendants even called a single witness for their defense. Meanwhile, Prosecutors allegedly called 28 witnesses, including Alejandro Burzaco, former CEO of Argentinian sports marketing company Torenos y Compentacias, S.A. This testimony appeared to be most significant as Burzaco was one of the of the named parties in the 2015 indictment.
On December 22, 2017, a jury convicted Napout and Marin on multiple counts of racketeering conspiracy, wire fraud, and wire fraud conspiracy. Each of these counts carries hefty sentences of up to 20 years in federal prison. Immediately following the verdicts, U.S. District Judge Chen ordered Marin and Napout to immediate custody, considering each a flight risk due to having “vast amounts of wealth at their disposal.” Both men are awaiting sentencing, while Burga was acquitted of his charges.
Litigation is always a complicated, long-drawn out process that can take years to conclude, if it is pursued at all. As we saw with the Hawilla case, those defendants pled guilty nixing the need to a trial at all. In the next installment, I will attempt to, from a business ethics perspective, figure out why and what led up to the corruption seemingly so embedded in the FIFA corporate structure and if Swiss tax and corporate law are to blame.
Question to Readers: Any predictions for the outcomes of the cases? Tune in next week where the third installment. It only gets juicier...stay tuned!
Contributor Bio: Kathryn Boyle is in her last semester of law school at New England Law | Boston. Ms. Boyle’s interest lies in the intersection of sports, law, and business ethics. Post-graduation she aspires to practice as an employment and/or labor attorney for player associations in professional sports. (Twitter: @kayteboyle).