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FIFA crisis


The end of the House of Blatter


By Malcolm Moore and Ralph Atkins


The inside story on the measures being taken by football’s governing body to survive amid US and Swiss corruption investigations, anxious sponsors and falling revenues as new partners shy away.  

The “Home of FIFA” is an oblong building on a hill above Zurich. Wrapped in strips of grey netting it appears impenetrable, and for decades it seemed as if that was the way football’s governing body liked it. FIFA has always been a secretive club, accountable only to itself. 

But in May its world fell apart. Criminal investigations into corruption in both Switzerland and the US triggered an internal battle – still being played out – over how the organisation is run. 

The fight, in which FIFA president Sepp Blatter and his allies have been largely sidelined, has left control of the organisation in the hands of FIFA’s legal director and a US law firm hired to restore FIFA’s reputation and ensure its survival – even as fresh evidence of a cover-up of corruption at the top is unearthed. 

FIFA is facing an existential threat. Its revenues have been hit by the scandal, as new partners shy away, and there will be cost-cutting ahead. But inside the organisation many of those hoping to replace Mr Blatter when FIFA elects a new president in February remain in denial about the need for change, according to people close to the organisation. 

“It is not a forgone conclusion that the company [FIFA] will survive,” says a senior person close to the body. “It is up in the air.” 

This account of the past few months inside the headquarters of world football is based on interviews with FIFA officials and others with first-hand knowledge of the last days of the Blatter reign. Most asked for anonymity due to the sensitivity of the situation. 

Early morning wake-up   

Mr Blatter was having his morning coffee when he learnt that Swiss police, acting on a request from the US Department of Justice, had swooped on the Baur au Lac hotel and arrested seven senior FIFA officials. It was 6am on Wednesday, May 27, and Marco Villiger, FIFA’s legal director, called Thomas Werlen to ask for help. 

For six years, Mr Werlen was the general counsel to Novartis, the Swiss pharmaceuticals group, as it battled accusations from the DoJ that it illegally marketed a number of drugs and paid doctors to prescribe them. It eventually paid $422.5 million (CHF430 million) to resolve criminal and civil liability in 2010. Two years later Mr Werlen became a Zurich-based partner at Quinn Emanuel, the US law firm which had begun advising FIFA in 2014. 

Mr Villiger, who has worked at FIFA for nine years, also contacted Bill Burck, a one-time special counsel to George W Bush in Washington who is now a Quinn Emanuel partner. Today Mr Burck, who is also a former assistant US attorney in New York, acts as one of the main conduits between FIFA and the DoJ. 

After Swiss police swept through the hotel, investigators from the public prosecutor’s office arrived at FIFA headquarters to begin their own probe.  

In the aftermath, there was confusion about how to respond to the crisis. Senior FIFA figures, outraged at the timing of the raids – just two days ahead of a presidential election – accused the US of overstepping its authority. 

“There were many different responses within FIFA,” says one person who has spent considerable time inside the Zurich headquarters over the past few months. “At the worker level there was real shock and fear and confusion but also a sense of: ‘What can we do about it to make it better?’ At the political level, it was very different. There was a defiance and lack of appreciation for the severity of the situation,” he says.   

Even now, a number of FIFA’s leaders still “think this will go away”, says a person familiar with FIFA’s 25-strong executive committee, the cabinet that makes all major decisions. “Most of the executive committee are in denial. Only a small group understands,” he says. 

Nevertheless, the pressure was enough to force Mr Blatter into an about-turn. Just days after he had been re-elected for a fifth term as president despite calls for him to quit, Mr Blatter said he would stand down after a fresh election. 

Several people say the U-turn was triggered by warnings that he could become a target of the US investigators if he stayed on. “That is not true at all,” Mr Blatter told the FT in a recent interview. “I took personal advice not legal advice, from people I trust.” Among those he met was Mr Villiger, who explained FIFA’s legal position. After that, Mr Blatter says, he chose to go “to protect FIFA”. 

The US indictments could destroy FIFA. The DoJ – which opened its investigations at least four years ago – is prosecuting FIFA officials under the Racketeer Influenced and Corrupt Organisations Act, legislation drawn up to target mafia syndicates that had taken over otherwise lawful organisations. The DoJ is currently gathering more evidence and some of the arrested FIFA officials have agreed to co-operate with the inquiry. More arrests are expected in the next six months. 

If the DoJ charges FIFA with racketeering, its sponsors and broadcast partners would immediately have to cut their links and world football’s governing body – which had revenues of $5.7bn in the four years before the 2014 World Cup – would disintegrate. 

But there is wiggle-room built into the indictments. FIFA is also named as a “victim” of the alleged crimes, both in the US and Switzerland. In the US, courts have sent FIFA four “victim notices” so far – automatic notifications from the court to the injured parties in upcoming cases. 

“You can either be an entity set up to commit crimes, or you can be an organisation which has been used by individuals to commit crimes,” says a person familiar with FIFA’s legal woes. 

Victimhood   

Since the break-up of Arthur Andersen, the accounting firm, in the wake of the Enron scandal, US prosecutors have been reluctant to chase companies into the ground, in order not to destroy the livelihoods of innocent workers, even if the organisation’s leaders are at fault. 

But the Brooklyn-based US prosecutors looking at FIFA are not white-collar crime specialists; they deal in organised crime. “They probably would have charged FIFA as a mafia enterprise and that would have ended it. But someone high up at the DoJ might have recognised that would cause a problem. The victim status is an interim solution,” he says. 

The key to maintaining “victim status”, according to the person close to FIFA, is to act like a victim. “What does a victim do? Someone who is a victim wants to find out what happened and get justice. Someone who is not really a victim looks the other way.” From the outside, FIFA did not look like a victim. Instead, its leaders were denying any significant wrongdoing. 

FIFA’s communications department was in meltdown. Quinn Emanuel hired Teneo, a strategic communications firm that had advised BHP Billiton, Novartis and UBS on their battles with US prosecutors to work with it on the FIFA case. The brief was to make the governing body appear transparent, less political and more co-operative says one person close to the organisation. 

But not everyone bought into the strategy. On July 20, Quinn Emanuel gave a presentation to the executive committee outlining how FIFA needed to present itself as a victim. 

“There was understanding. There were some nodding heads,” says a person present. “Then Blatter’s reaction was: ‘We have nothing to worry about, we are victims.’” Two other people present said it was not their impression that Blatter was trying to belittle lawyers’ advice. 

The tension grew over the summer, with the FIFA leadership lining up against Quinn Emanuel – which has devoted a team of around ten lawyers to the case – and the legal department. 

To the frustration of many, Mr Blatter continued to publicly condemn the US investigation as politically motivated. 

“Everyone told Blatter respectfully and repeatedly not to make public comments denigrating the investigation. He was asked to focus on football,” says one of his advisers. 

Even Lorenz Erni, Mr Blatter’s Swiss lawyer, asked him to stop speaking. But others advised him to get his message out. One of his close circle says Swiss banks were advised to “shut up” when they were in dispute with the US but that did not achieve much for them in the end: “I thought he should tell his story.” 

Pressure continued to mount. Jérôme Valcke, FIFA’s general secretary who was considering a bid for president, was suspended after being implicated in a World Cup ticket scandal. In August, FIFA’s sponsors arrived in Zurich for talks. “They said they were supportive of the plans, but why was no one controlling the president,” says one person present. “And they wanted to know how long the investigations would last.” They were told that FIFA’s problems with the DoJ would last for another year. Swiss officials believe their investigation will take five to six years. 

In October, Coca-Cola, McDonald’s, AB InBev and Visa called for Mr Blatter to immediately resign. He was forced out six days later, bringing to an end a 17-year reign, when Swiss prosecutors said they were investigating him over a CHF2 million ($1.95 million) payment to Michel Platini, the head of European football. 

“No one laid any bear traps, but when the situation arose, they made sure the right thing was done,” says a person close to FIFA. Mr Blatter’s friends blame Quinn Emanuel and Teneo. “They have FIFA under control. No decisions are taken without their OK,” says one. Mr Blatter puts it more bluntly: “Quinn Emanuel is in charge of FIFA,” he says. 

His office, a 1,500 sq ft suite, has been cleared of his personal items, the pictures and souvenirs from around the world. Last Wednesday, his appeal against his suspension from all footballing activities was rejected. Since his departure, he has had a lengthy spell in hospital after suffering a “total failure of everything apart from his heart and brain”, says a spokesman. 

Fresh investigations  

In July, Quinn Emanuel created an off-site data room to conduct its own investigation into FIFA. After sifting through thousands of emails, several more examples of suspected corruption – and apparent efforts to cover them up – were unearthed and forwarded to the Swiss authorities, according to people with knowledge of the investigation. 

“The evidence has opened new channels of investigation,” says one person close to FIFA. “A lot of it has been actively concealed. In the past four years there are no examples of open and notorious stuff but of senior people concealing their activities.”   

But the DoJ has grown impatient with apparent foot dragging by Swiss authorities. “They want to see results,” adds the same person. The Swiss criminal code prevents foreign authorities operating within Switzerland without consent and the FIFA case has highlighted a transatlantic clash of legal cultures. 

Folco Galli, a spokesman for the Swiss justice ministry, says there is a treaty with the US that allows for “legal assistance” but admits: “We have not yet provided the evidence that the US authorities are asking for. It will take time.” 

FIFA’s administration, led by Markus Kattner, the acting secretary-general, is planning for a less rosy future. The executive committee met last month, when Mr Kattner gave a presentation on FIFA’s revenues and costs and how the crisis was affecting the organisation. 

“The shortfall this year means costs need to be trimmed,” says a person at the briefing. “No one has been signing up sponsors.” 

The most important reform, stripping the committee of its executive powers and giving operational control of FIFA to an appointed chief executive, is also winning support. “The reforms will go through even if [member] countries do not want them, otherwise they will be hit in the pocket. They need the reforms to get the revenues they want because otherwise the sponsors will leave,” he adds. 

Others close to FIFA are studying the creation of a “bad bank” structure, where FIFA’s historic operations are left behind to co-operate with the DoJ while the organisation forms a new arm to move into the future. 

“You want the body in charge of world football to survive and carry on without living in a constant state of crisis,” says one person familiar with the talks. 

What is clear is that FIFA’s low, grey, oblong headquarters will have to become more transparent to survive, whether its leaders want it to or not. 

How it unfolded  

May 2013- Former FIFA executive committee member Chuck Blazer is arrested in the US on bribery charges and begins to co-operate with an investigation into football’s governing body 

May 27, 2015- Police raid Swiss hotel and arrest seven FIFA officials. FIFA legal director Marco Villiger calls in US law firm Quinn Emanuel  

May 28 - A $10m payment from South Africa to FIFA’s Caribbean federation – ahead of the 2010 World Cup – is revealed 

May 29 - Sepp Blatter is re-elected president 

June 2 - FIFA denies any knowledge of the payment from South Africa. But two hours later, a letter sent to Jérôme Valcke, FIFA’s general secretary, emerges. Blatter says he will resign 

Mid-June - Quinn Emanuel hires PR company Teneo to work with FIFA 

July 20 - Quinn Emanuel briefs FIFA’s executive committee on legal strategy  

August 20 - AB InBev, Adidas, Coca-Cola, McDonald’s and Visa meet FIFA executives in Zurich   

September 17 - Valcke is suspended following allegations of a ticket scam. He denies any wrongdoing 

September 25 - Swiss prosecutors place Blatter under criminal investigation 

October 3 - Sponsors call for Blatter to resign immediately 

October 8 - FIFA’s ethics committee suspends Blatter, UEFA president Michel Platini and Valcke 

October 20 - Markus Kattner, acting general secretary, tells FIFA executive committee that cost-cutting is inevitable

 

Copyright The Financial Times Limited 2015

Financial Times



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