The U.S. Department of Justice ("DOJ") indictment of various individuals and companies relating to FIFA has made front-page news around the world. This client alert considers the effect that the indictment may have on the organization of FIFA itself, as well as parties doing business with FIFA.
On May 27, 2015 an indictment was unsealed under which the DOJ charged 14 defendants with, among other things, racketeering, wire fraud and money laundering conspiracies. Four individuals and two corporate defendants' guilty pleas were unsealed at the same time. While FIFA itself was not charged, the indictment alleges a wide-ranging bribery scheme involving various officials of FIFA and affiliated organizations, who are alleged to have accepted over $150 million in bribes over a 24-year period.
The indictment alleges that FIFA and its six continental confederations, affiliated regional federations, national member associations and sports marketing companies constitute an enterprise of legal entities associated in fact under federal racketeering laws. The main purpose of this enterprise is to promote the sport of association football (known in the US as "soccer") worldwide.
However, from 1991 to date, the DOJ alleges that the defendants and their co-conspirators corrupted the enterprise by engaging in criminal activities, including fraud, bribery and money laundering.
Possible RICO Action Against FIFA
While the indictment charges certain individuals and companies so far, the fact that FIFA is specifically alleged to be a "racketeering enterprise" under the U.S. racketeering laws may have serious repercussions for FIFA, and for entities that do business with FIFA. The worst case scenario would be if the DOJ brought a claim against FIFA for violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO") found in Title 18, United States Code, Section 1962 et seq (a "RICO claim").
The DOJ can obtain a variety of wide-ranging equitable remedies in a civil RICO case, including:
- divestiture, dissolution and reorganization,
- limitations on future activities, and
- the appointment of court officers.
Each of these is considered in turn.
The DOJ may seek to enjoin both unlawful acts, and otherwise lawful conduct to ensure that misconduct is not repeated. Such injunctions must be specific and the acts enjoined must be described in reasonable detail.
Previous injunctions brought in the context of RICO claims demonstrate that the injunctive relief could include a prohibition on working with certain individuals and organizations and a prohibition on working in particular sectors or geographies.
RICO injunctions can go even further and enjoin non-parties in certain circumstances (enumerated in Rule 65(d) of the Federal Rules of Civil Procedure). Such non-parties must have a "privity of interest" with the enjoined party, and restrictions applicable to such non-parties could be imposed to stop the enjoined party carrying out prohibited acts through third parties.
Divestiture, dissolution and reorganization
A court can also order a party to divest itself of certain property (particularly if it was involved in the racketeering activity) and/or reorganize itself.
Courts have successfully imposed reorganization requirements in RICO cases in a labor union context – the reorganization has involved, for example, the removal of the union's executive board in favour of a judicial trusteeship and the imposition of a grievance/arbitration procedure.
In the Second Circuit, which includes the court in which the FIFA-related claims are being heard, disgorgement of the proceeds of unlawful activity is considered to be a remedy for civil RICO violations.
Limitations on future activities
A U.S. court can impose reasonable restrictions on future activities, including prohibiting the person from engaging in the same type of behaviour. In previous RICO actions this has led to courts removing persons from positions within the relevant entity and prohibiting them from holding such positions in the future.
In a civil RICO context, the Government often requests that a court-appointed officer be put in place to monitor the affairs of the enterprise. Such court-appointed officers (known as monitors, masters, administrators, officers etc) perform a number of functions including, pertinently, the remedial function of monitoring the enterprise to ensure that it does not further breach U.S. law and achieves requisite institutional reform. Such officers are common in other resolutions of U.S. criminal and civil charges.
Courts have imposed this requirement in the civil RICO context primarily for labor unions to assist the court in monitoring compliance with court orders and in imposing sanctions for violations of such orders.
The imposition of a court-appointed officer could have serious consequences: costing a large amount of money, leaving the inner workings of the organization open to transparent scrutiny, and uncovering further issues which may lead to legal liability.
Other issues to consider
Corporations doing business with a sports federation (such as sponsors of the federation's sporting events) may have anti-bribery/anti-fraud clauses in their contracts with those federations that may be breached by a finding that a federation has been implicated in U.S. RICO offenses. Such breach may have significant monetary consequences for the parties concerned.
Relevance to other organizations
The RICO statute permits the DOJ to aggressively prosecute allegations of corporate fraud. However, the penalties imposed on companies do not stop at the removal of relevant persons and the payment of fines. RICO liability can lead to additional measures which are continuing and extensive in nature and could (if, for example a monitor discovers additional misconduct) lead to further action being taken by the U.S. authorities.