FCPA Third-Party Risk: Budweiser, FIFA and 2014 World Cup- Part 1

Note: This is a guest post by attorney and compliance expert Ramsey Kazem.  It is the first in a five-part series that we will be sharing for the next five weeks. 

The 2014 World Cup soccer tournament in Brazil provides an interesting case study of how changing conditions and the failure to recognize and respond to red flags can transform a lucrative business opportunity, with seemingly low third-party risk, into a high-risk venture with substantial FCPA exposure.
The World Cup is the most popular sporting event in the world.  In 2014, the tournament reached a television audience of 3.2 billion people with approximately 1.013 billion tuning in for the final match.  With the eyes of the world captivated, the World Cup presents an exceptional platform to promote the game, showcase the host country, and highlight the philanthropic achievements of the soccer community.  From a business standpoint, the World Cup presents a tremendous opportunity to market commercial products and services.  It is no coincidence that from 2011-2014 soccer’s governing organization, the Fédération Internationale de Football Association (more commonly known as “FIFA”), earned a total of $1.6 billion in sponsorships alone.
While FIFA offers lucrative business opportunities for its sponsors, there is a potential downside to doing business with this organization. 
For many years, there have been rumors of widespread corruption within FIFA.  In 2015, these rumors were all but confirmed when the DOJ filed a 92-count indictment against more than 30 FIFA officials and business partners.  The indictment alleges a complex scheme of corruption where high-ranking FIFA officials solicited bribe payments in connection with tournament related contracts, media and marketing rights, and sponsorship rights.  In addition, senior FIFA officials are alleged to have received bribe payments in relation to the host country selection process for the 1998 and 2010 World Cup tournaments.  The trial in this matter is tentatively set for November 2017, but so far at least sixteen individuals and two sports marketing companies have pleaded guilty for their roles in the corrupt scheme resulting in more than $200 million in forfeiture.  To date, none of FIFA’s sponsors is directly implicated in the corruption scandal.  Nevertheless, they should closely monitor any developments on this front as their continued affiliation with FIFA could present a threat to its brand reputation. 
From an FCPA third-party liability perspective, a sponsor’s decision to partner with FIFA for the 2014 World Cup appears to have been low-risk.  The rumors and recent allegations, even if true, focus on bribe payments to FIFA, a non-governmental entity, whereas the FCPA prohibits the bribery of foreign government officials.  Moreover, the allegations against FIFA focus on the organization as a recipient or solicitor of bribes.  The FCPA only penalizes the person or entity offering, making, or approving the bribe payments.  For these reasons, an initial FCPA risk assessments would have green lighted the sponsorship opportunity and categorized the business relationship as low-risk.  Nevertheless, it is important to remember that a risk assessment is only a snap shot in time.  Changing conditions and unaddressed red flags can quickly alter the risk profile of a business opportunity.  This is precisely what happened with respect to Budweiser’s sponsorship of the 2014 World Cup.
In 2006, when Budweiser extended its sponsorship agreement to include the 2014 World Cup, its business relationship with FIFA presented very little FCPA risk.  At that time, Budweiser had been a World Cup sponsor for nearly twenty-years without incident and there were no obvious red flags signaling FCPA concerns.  However, in advance of the 2014 tournament, a controversy emerged that prompted FIFA to directly engage with the Brazilian government and demand governmental action for the exclusive benefit of the King of Beers.  In so doing, the Budweiser became exposed to significant FCPA risk.
This is Part I of a five-part series discussing FCPA third-party risk in the context of Budweiser’s sponsorship of the 2014 World Cup. Part II will provide an overview of Budweiser’s relationship with FIFA and discuss the changing conditions that substantially altered Budweiser’s FCPA risk profile.  Part III will identify and discuss the red flags that should have put Budweiser on high alert of its increasing FCPA risk.  In Part IV, using Budweiser’s sponsorship of the 2014 World Cup as an example, we will discuss a two-phased strategy for directly confronting and mitigating FCPA risk.  Finally, in Part V, we will explain how the lessons learned from this case study should be applied to mitigate FCPA risk in future business opportunities.

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