FCPA Third-Party Risk: Budweiser, FIFA and the 2014 World Cup: Part 3

Note: This is a guest post by attorney and compliance expert Ramsey Kazem.  It is the third in a five-part series that we will be sharing in the next weeks. In this part, we will provide a brief discussion of FCPA third-party liability and identify red flags that should have put Budweiser on high alert of its increasing FCPA risk. 
 
FIFA’s relentless effort to secure the repeal of the alcohol ban did not come from a benevolent desire to improve the fan experience or to promote the good of the game.  FIFA’s singular motivation was to obtain a lucrative business opportunity for the exclusive benefit of its official beer sponsor.  In this capacity, FIFA was effectively acting as Budweiser’s third-party agent.  And, to the extent FIFA engaged in any corrupt conduct in lobbying the Brazilian government, Budweiser, as the sole beneficiary of the governmental action, may be in violation of the FCPA. 
 
The most straight-forward example to illustrate Budweiser’s indirect liability is a scenario where Budweiser wires funds to FIFA for the express purpose of paying “gratuities” to FIFA’s contacts in the Brazilian legislature.  Under this hypothetical, the fact that Budweiser had no direct contact with the Brazilian government is of no significance as the FCPA prohibits using a third-party to do indirectly what cannot legally be done directly.  Budweiser is not any less culpable under this scenario than if it had directly negotiated the bribe payments with the Brazilian officials.    
 
While the above hypothetical provides a clear illustration of an FCPA violation triggered through the use of a third-party, it is unlikely that such a blatant scheme would pass through the internal controls of an organization as sophisticated and well-respected as Budweiser.  However, that such an obvious violation is likely to be red flagged does not end the analysis.  Budweiser’s indirect liability under the FCPA is not limited to scenarios where it actively participates in, or has actual knowledge of, the corrupt scheme.  An organization can be indirectly liable for the conduct of its agents when it is “aware of a high probability” that a corrupt act has or will occur.  This standard prevents an organization from insulating itself from liability by burying its head in the sand.       
 
Red Flags
 
To date, enforcement agencies have not alleged that FIFA acted corruptly in dealing with the Brazilian government.  Time will tell if such allegations surface.  However, two facts are certain:  (1) FIFA was adamant that the alcohol ban be repealed; and (2) FIFA would not take “no” for an answer.  These two facts alone should have raised FCPA concerns within Budweiser.  Moreover, Budweiser should have identified the following red flags:
 

• FIFA’s Reputation.
  While the indictment against FIFA was not filed until May 2015, the allegations confirmed what many knew, or suspected, for decades.  In fact, Attorney General Loretta Lynch stated that corruption within FIFA “is rampant, systemic, and deep-rooted . . . [and] spans at least two generations . . . .”  In addition, there were a number of public scandals that revealed corruption within FIFA.  For example, in 2006, FIFA fired four employees for “repeated dishonesty” and “giving false information” in connection with FIFA’s sponsorship negotiations with MasterCard.[1]  MasterCard, a sponsor from 1990-2006, sued FIFA for this fraudulent behavior and, ultimately, settled the suit for $90 million. In 2011, two high ranking FIFA officials were suspended amid allegations of bribing voters in the 2011 FIFA presidential election.  Around that same time, eight members of FIFA’s executive committee were accused of selling their votes for the 2018 and 2022 Word Cups.  These and other scandals were well publicized and occurred prior to the repeal of Brazil’s alcohol ban.  Budweiser, therefore, should have been well aware of the questionable tactics FIFA was willing to use to achieve its desired outcome.
   
• Host Country.
  Even before the recent corruption scandals that led to the impeachment of former President Dilma Rousseff and allegations of wrongdoing by dozens of current and former politicians, Brazil was perceived as a high risk country for political bribery and corruption.  Transparency International, a global non-political, non-profit organization, publishes an annual ranking of countries based on how corrupt their public sector is perceived to be using a scale of 0 (highly corrupt) to 100 (very clean).  In 2012, the time relevant for purposes of this analysis, Brazil was ranked 69 out of 174 with a score of 43.  In addition, there were a number of scandals involving the award of public contracts for the construction and renovation of World Cup soccer stadiums.  For example, Andrade Gutierrez SA, which was awarded contracts totaling nearly 25% of the total construction budget, admitted it paid bribes to obtain these contracts and, entered into a leniency agreement with the Brazilian government through which it agreed to pay $286 million in fines.  The pervasiveness of public corruption in Brazil should have been a major concern for Budweiser – especially as FIFA engaged Brazilian officials to secure the right to sell alcohol in stadiums.
   
• Purpose of the Alcohol Ban. 
  The alcohol ban was not some archaic restriction that no longer served a purpose in modern times.  To the contrary, the 2003 law was enacted to address an existing public safety concern: alcohol induced violence at soccer matches.  Thus, by authorizing the sale of alcohol in stadiums, the Brazilian government would effectively abdicate its most fundamental responsibility to its constituents, public safety.  This type of concession typically comes at a price.
   
• Public Controversy.
  The proposed repeal of the alcohol ban was controversial.  Some members of the Brazilian legislature strongly opposed the repeal and campaigned for the law to remain in place.  In addition, Brazil’s Health Minister publically urged for the ban to be maintained.  Thus, the repeal was anything but a perfunctory governmental action and likely required arm-twisting in order to be realized.
   
• FIFA’s Public Statement.
  FIFA’s response to the controversy surrounding the repeal was very arrogant, condescending and tone-deaf.  FIFA’s public position was “we are going to have them”, “we won’t negotiate” and “the right to sell beer has to be part of the law.”[2]  Not only was this message and the manner in which it was delivered a public relations disaster, it failed to acknowledge the very real concerns the alcohol ban was intended to address.  By taking a hardline stance and refusing to negotiate an accommodation that addressed the public safety concerns (e.g. implementing safeguards to reduce the risk of excessive alcohol consumption), FIFA demonstrated a determination to secure the repeal by any means necessary.
   
• FIFA’s motivation.
  Despite FIFA’s contention that “alcoholic drinks are part of the FIFA World Cup”, the fact of the matter is they are not and their absence would not inhibit a successful staging of the tournament.  Qatar, the expected host of the 2022 World Cup and a conservative Muslim nation, is struggling with the same issue.   In that instance, the general secretary of the Qatar 2022 Supreme Committee has publically questioned the need for alcohol to be sold in the stadiums.  Recognizing that the in-stadium sale of alcohol does not fundamentally impact the viability and overall success of the World Cup tournament, it is clear FIFA was motivated by a singular purpose:  to secure a commercial opportunity for its sponsor.  FIFA’s willingness to set aside public safety concerns for commercial gains raises yet another red flag.
   
• New Sponsorship Agreement.
  On October 25, 2011, approximately 3 months before Mr. Valcke’s public demand for the repeal of the alcohol ban and 7 months before the “World Cup bill” was signed into law, FIFA announced that Budweiser extended its World Cup sponsorship agreement through the 2022 tournament.  By the time the extension was negotiated and finalized, FIFA already announced that Russia and Qatar had been selected to host the 2018 and 2022 tournaments, respectively.  Both countries have a ban on in-stadium alcohol sales.  The timing of this agreement raises many questions – especially since FIFA will confront the same issue in relation to the tournaments governed by the new agreement.  Was the issue addressed?  If so, how?  Was any portion of the sponsorship fee designated for lobbying / negotiating with governmental entities?  The answer to these and other questions could have a tremendous impact on Budweiser’s FCPA exposure.
   
• Exclusive Beneficiary.
  FIFA’s triumph in securing the right to sell alcohol at the World Cup created a lucrative market for the exclusive benefit of its official beer sponsor.  For Budweiser this was a blessing and a curse.  Just as FIFA’s efforts resulted in an exclusive opportunity for Budweiser, it also created a risk that was unique to Budweiser.  As the sole beneficiary of the effort, Budweiser will be hard-pressed to distance itself from FIFA’s conduct.  If any corrupt conduct is discovered, Budweiser will be a prime target in any related investigation.       

These and other red flags should have alerted Budweiser of its increasing FCPA risk.  Moreover, as will be discussed in more detail in Part IV, Budweiser should have begun the process of mitigating its exposure to potential FCPA violations. 

Ramsey Kazem can be reached by phone at +1-404-872-5615 or by email at info@thethreetwelvegroup.com.

[1] See ESPN FC article, “FIFA fires employees over sponsorship dealings”, December 12, 2006.  Article can be found here.  

[2] See BBC News article, “Beer ‘must be sold’ at Brazil World Cup, says FIFA”, January 19, 2012.  Article can be found here.