Football's illicit financial flows

In this episode, I spoke to Nick Raudenski, a seasoned investigator whose career journey spans both law enforcement and sports. We sat down to discuss the EU's new AML regulation labelling professional football clubs as so-called "obliged entities" for AML/CTF purposes. 

Nick and I delved into his transition from federal law enforcement to the brave new world of football. He shared the challenges he faced, from understanding the intricacies of sports organizations to tackling significant issues like match-fixing, corruption, and other financial irregularities. Nick provides his unique insights into regulatory frameworks like UEFA’s Financial Fair Play and the upcoming EU AML regulations.

Tune in to learn more about  the intersection of sports and financial crime, the regulatory landscape, and the need for specialized knowledge to implement effective compliance programs in football. Nick’s experiences provide a behind-the-scenes look at the critical efforts to preserve the integrity of the world's most popular sport. 

For more detailed information on the subject, you can read our article in the June 2024 edition of the ACAMS Magazine accessible under the following link: https://www.acamstoday.org/european-football-clubs-under-afc-regulation/ 

Connect with Us:

• LinkedIn: https://www.linkedin.com/showcase/integrity-insights/?viewAsMember=true
• Berlin Risk Linkedin: https://www.linkedin.com/company/berlinrisk/?viewAsMember=true
• Website: https://berlinrisk.com/

Transcript

Hi Nick, welcome on the podcast. Thank you very much for, uh, joining me today. Thank you very much, Philip. Great to be here. Thanks so much for the, uh, for the invitation. Looking forward to this. Likewise. Uh, let's, let's, let's maybe jump into your, uh, background, your career educational background. I mentioned a little bit in the introduction about the judging by LinkedIn profile.

There's a lot going on, so why don't you introduce your. Yeah, absolutely. So I'll start from the beginning. Um, I was always interested in investigations. Um, and then I, um, always sort of paired that with, with sports, I've always been playing sports, playing soccer, what we call soccer back in America, football for, for our international listeners.

Um, but when, uh, the focus came to, to education, I, I really wanted to focus on something that got me into investigations. So I studied criminology, criminal justice, um, throughout undergrad, a master's degree in Washington dc very governmental focus, uh, in, in Washington, of course, as, as one can imagine. Uh, and then I was lucky enough to have an internship at a, at a major, um, federal, uh, institution, um, that was focused on investigations and enforcements.

So I was lucky enough after out of grad school to get into. Our Federal police academy or, or our international, uh, our, our training academy, uh, which, which put me on as a, as an investigator. But if you can imagine like, not really having the, the, the real world experience, but starting off very young.

Trying to figure out what I'm doing. Learning a lot from, from like the senior agents of figuring out what's going on. Young twenties, right? They give a badge and a gun and it's like, okay, go out and, and investigate and enforce, enforce crime, right? So, like, I always say this 'cause it's, I like to check myself and, and really remind myself how much I've relied on senior.

People, senior influential people in, in my background. Um, and so, you know, did really did some wild work, some crazy stuff where I, I kind of looked around and was like, what's going on in my life? Like, you know, we're, we're doing big cases. Um, and, and out of the academy, I just wanna say, uh, out of the, the, the sort of federal Investigator Academy I got sent down to Puerto Rico, there's like this international world of drugs and money and guns and smuggling coming up from, you know, Columbia or Venezuela, like into the, the States.

And, and it was just, it was just sort of, that was my first real introduction of. Money and the movement of money and smuggling of money and proceeds from crime. And we were going out, uh, abroad, um, internationally, going to the Middle East, going to Europe, um, working with foreign counterparts on detecting flows of, of, of money, uh, smuggling and worked a lot in the Middle East.

On a lot of like, Afghanistan, Pakistan, um, uh, flows coming out of, out of the region. Um, and it was really sort of great, great work, uh, great stuff to, to, to do. Um, again, sort of focusing on these financial transactions and the money flows that are going around, uh, certainly in the, the Middle East. So, uh, Nick, up to that point, you had no exposure to sports or football as a sector, right?

No, so, so all I had as a, a football, as a sector for me was being a fan, right? I, I would play it, I would, I, I, I played since I was three years old, like it was sort of my first love as a sport. Um. Would, you know, would travel for games, would travel for tournaments. I remember, you know, uh, traveling internationally to the World Cup, playing it on the nights and weekends, but still not having this intersection between the two things.

And, and I remember, you know, one time we were sitting there watching a game, um, and, and a friend asked me like, what would you like, what's your dream job? And I was like, doing. What I know how to do or what I'm currently doing in investigations, but in sports, in in football somehow. Um, and then I remember getting a call from, uh, one of my teammates.

He was like, look, I saw this job opportunity. This looks perfect for you. It's with fifa. Uh, and I was like, so, you know, trying to tackle organized crime, um, match fixing, betting illegal. Betting movements in sports, doing training programs. And I just remember being like, wow, that sounds exactly like what I was sort of looking for.

Right? It was like, it was sort of like, uh, sort of divine intervention, right? So, so I always tell this story. I was like halfway in my career in federal law enforcement, but I took the, took the opportunity to, to, to leave and to get involved in the, you know, in the sports sector. Um. And this was around 2013, right?

Yeah. Correct. Correct. Around 2013, I left federal law enforcement and I, and I joined, uh, FIFA at the time. Um, and, you know, talk about sort of eye-opening experiences, it was. You know, going, going into an organization. Then this was, you know, for all of our listeners, uh, to put that in the timeframe. This was before FIFA Gate, right?

This is before the big scandals. This is, um, you know, before sort of all the, the sort of interventions that, that, let's say that have happened. So it was really eye, eye-opening to see how sports worked. I'll just make a quick side note here, because FIFA Gate might not immediately ring the bell for everyone.

It's, uh, it, it was a scandal, also known as the 2015 FIFA corruption case in which 14 executive members of FIFA were arrested on suspicions of corruption. And, uh, this, uh, kind of triggered an investigation into how World Cups, uh, host country is selected. Uh, there's a, by the way, a fantastic Netflix documentary about, uh.

About, uh, the FIFA gate, uh, called FIFA uncovered, for those of you who would like to learn more. And so Nick, when you moved to Switzerland to take on this new job at fifa, did you feel, you know, well equipped to tackle these issues that football was facing at the time? Having had already plenty of experience as a criminal investigator with the.

Us, uh, law enforcement, um, looking back at it and, and sort of at the time I felt like I needed, and I always say it, I needed about a, a year to get my feet on the ground and understand how. The sports sector worked and how football worked and how the different hierarchy was. They have a, A pyramid, right, with FIFA and the confederation.

So UFA or CONCACAF or um, the A FC, how they worked, and then the national associations or the member associations, and then down to state associations and grassroots and understanding how that worked and the thing that was sort of very. Very, like that took me a long time is that, you know, sports organizations aren't inherently enforcement minded, right?

They're, they're promoting events. They're promoting the development of sports they're promoting. Sports competitions they're putting on the World Cup or Champions League or the Olympics, or, you know, uh, national competitions. So they're not really focused on what I was used to, which was enforcing or investigating crime.

So, so I remember having to really spend a lot of time with my director at the time. Trying to convince people of why we should care about integrity, why we should care about, you know, um, enforcing and, and, and conducting investigations and developing sources of information that were providing us information.

Um. Taking, you know, like a, a different approach because, you know, the sector itself wasn't set up that way. It, it was, you know, it's to promote sport to put on competitions. And so, you know, I had a really great colleague, um, a few years later that said that, you know, they, the two should be separated, right?

There should be an enforcement regulatory regime, investigations, integrity, and then. The promotion of, of sport or the football competition. Right. To try to separate those two because yeah, as you can see, and as we saw with a lot of the, the high profile cases, certainly some of the cases that I think you have identified in your article.

There are some problems there with the sort of policing themselves and identifying potential transactions that might come from dubious, um, sources or, you know, movement of, of financial flows. And they're not often the best, um, sort of established to, to, to want to expose some of that activity. And so, so I really felt that, you know, it was a, it was an eyeopening move, uh, sort of experience to.

Understand how sports worked, right? And understand how, how things happened with marketing and with voting for where, um, sports events, where the World Cup was gonna be, where the Olympics was gonna be. It took me a long, uh, sort of long time to make that transition to really where I felt comfortable to operate in that environment.

And Nick, you already mentioned match fixing, which if I understand it correctly, is a practice whereby a group of people attempts to influence the result of a game in order to gain financial profit. But besides that, what are the other, uh, crimes that you often see in in football? Yeah, I mean, as you can imagine with any sort of sector, all of the run of the mill, the bread and butter crimes that we're gonna face across, um, you know, financial crime programs also exist within the sports sector.

There's embezzlement, there's payoffs, there's there cash for votes. There's. You know, dodgy transactions that are occurring, um, opaque financial investment in, uh, you know, in, in either football clubs or, um, you know, in, in hosting of major games. So, you know, we're we're, we were seeing a lot of, a lot of things that sort of, at the time I think.

You know when, when I went in focusing on integrity, I thought fit under the, the big tent of integrity. And we were told like, no, you have a very small remit. You're only focusing on match fixing. Let's not really get out into a lot of, you know, some of the corruption areas, some of the financial movements, some of the investments, um, that was left up to.

Um, other, uh, ethics related, um, enforcement regimes, um, within, within sports. And so, um, you know, it's a, as we sort of say, or as has been well said, you know, football is big business and anytime that there's such amounts of financial flows in any sector, there's gonna be, uh, you know, uh, there's gonna be areas where, where certain.

Let's say unsavory activity also also follows. And so that really sets the scene from a financial crime perspective as, as to the depths of, of some of the things that are really happening within, within football and within sports, and how much regulatory power do those football, football associations like UFA or FIFA actually have to impose, uh, and enforce rules that, you know could, uh.

Help to tackle some of those, some of those issues that you've, uh, described here? Yeah. Yeah, it's a great question and I spent some time, you know, in, in prep for this to discuss and I, I, I don't wanna paint the picture that the whole thing is, you know, a bottomless, uh, pit of, of despair and, and you know, tons of activity.

There are some really great programs, and I have a lot of good colleagues that were involved in what's called like club licensing. Um, where, you know, UFO sort of certainly set the, the, the standards on this where they would establish the requirements of what the minimum activity that clubs needed to do to professionalize, to harmonize, to, to, to establish themselves.

Um, and they needed to get this license in order to participate in, in European competitions. And I'm just gonna focus on, on Europe 'cause I think it's the best place. It's the, certainly the most advanced and the most developed in terms of, of regulatory and, and certain financial rules. And, and our listeners will probably also be very familiar with what's called financial fair play or as some like likely, uh, and very, uh, very much in jest, call it financial doping, right?

Where you have this, these standards of investments and, and the, the desire, the, the reality to try to. Balance the books and, and balance a certain, you know, minimize the amount of losses that's occurring. But you know, this, this regulatory system is established by the confederations or by the governing bodies.

So they can impose this on the associations that make up the confederation or also on the clubs that, that, that are part of the association. So there, there are. Abilities to impose financial rules. I think some of the challenges come where, you know, there's sort of a lack of enforcement standards in the activities that are happening.

There's a lack of knowing where the finances are coming from. There's a lack of, you know, sort of, um. Enforcing that financial transparency. And I think that that's where, that's where a lot of challenges have, have originated. When we look at the, the financial flows in, in sports. FIFA recently had start, started to also make a movement towards what's called the, the FIFA Clearing House, where they're trying to, you know, um, uh, conduct an assessment or, or, or, or.

Oversight of some of the training rewards or the movements that are going out between, um, you know, between clubs, but it also doesn't fall within the strict view of several international financial regulations. So, so it doesn't go as far as to look at transfers of players between clubs, look at the, the, the funding sources of, of what's happening there.

So, so to answer your question, there's. There's a lot of work that's going on in, in sort of the regulatory, uh, regime. There's a lot of governance that's gone on since you know, the reforms and since, uh, you know, some of the big scandals. So there are movements that are happening, but it's still, the sector's still a little bit behind.

Um, you know, when it comes to sort of really ripping the bandaid off when it comes to financial transactions. Right. And, uh, clearly the EU governing bodies are of the same opinion, which is why the EU Parliament adopted, uh, new a ML regulation where it labeled professional football clubs as obliged entities.

Meaning that they, uh, from 2029, uh, they'll be obliged to conduct due diligence on, uh, their investors. The, so their source of funds, uh, they have to, uh, you know, identify the. Uh, ultimate beneficial owner. So all those kind of regulations that already apply to the financial sector. And I would like to ask you, what do you think, you know, in general, what is your view of the, of this regulation?

Do you think it's a, you know, it's a step in the right direction. Uh, do you think this will help maybe, uh, solve, uh, some of those, some of those issues that, uh, football faces at the moment? Yeah, I mean, from my personal view, I think I'm, I fully welcome this, I think it's a great step in the right direction.

Any regulation or any setting up of a framework that has oversight and that try tries to control some of the activities, um, within reason, I think is a, is a, is a great step in the right direction. I think your article, as you referenced. There's a multiple, uh, a multitude of, of reasons why this needs to happen.

Um, you know, but I think for. For a little bit that we have to remind ourselves that this niche sector that I was describing, this sort of this niche area has largely gone unregulated, right? And there's sort of more movements through club licensing and through financial fair play and through some of the the other things.

But it hasn't gone under this sort of scrutiny of the transactions. And, and I think the basics of what the directive is, is stating is. Due diligence. Know your customer, the basis of what has happened in the, the financial sector for the past 20, 25 years. And that largely hasn't happened in in football.

And I think, you know, when we look at. The, the volume of investment that's happening within football. When we look at the inflation of player salaries, when we look at the volume of transfers, the whole transfer market is very susceptible to, to some of these problems, right? Opaque. Offshore transactions, front companies.

Um, so, so it's clear that this sector has, has had its challenges. So I very much welcome the view from the, the, the powers that be to, to look at a way to regulate it. Um. I think that there are, there are gonna be some growing pains when it comes to this. There's gonna be some, some concern with, well, we're not financial, uh, institutions, we're not set up to do this.

Uh, and how do we do this? Right? So there's gonna be, I think some, certainly some concerns on how it, um, you know, how it's established, but anybody can go and, and reference either your article or football leaks or anything to see how deep. Some of the transactions go. So I think, you know, very much, um, you know, the sector's gonna be faced with a bit of a reckoning on, on what it has to do and, and how it has to reorganize itself to comply with this directive.

Speaking of complying with the directive, um, I was also wondering how do you view, you know, the different, let's say, starting positions of the different football associations within Europe? Because obviously, as everyone knows, they are huge. Uh, differences, you know, huge discrepancies in terms of how much, how much financial resources the different football clubs, uh, have, or how developed these individual football leagues across Europe are.

And so I wonder, you know, are there maybe some, uh, markets, uh, meaning football leagues in Europe that are maybe much better positioned to adopt to these changes than than others? Yeah, the best way to describe this is, is to remind ourselves that football exists in the society in which it's established, right?

It's a mirror of the society. So where you have a, a strong financial regime, you have a strong rule of law, you're also gonna have those, those entities existing within, um, you know, within that structure. And then, you know. Also the same, uh, applies for lack of sort of oversight, lack of regulation, um, where football exists maybe in looser regimes or looser, uh, uh, societies where there's higher cash based transactions, there's a lot more risk where it comes to, you know, the movement of money.

I was sort of, I always remind myself how shocked I was. When I was talking to some, some insiders on how they're moving money that they came back and, and identified alah or the informal value transfer system as being applicable and, and really being used and sort of surprising myself on how. A sector like this or, or betting related or, or movements of money to, to circumvent, you know, reporting requirements is still used in those sectors.

And so I don't think that we can say with broad brush strokes, whether it's uh, Western Europe or Eastern Europe or the farther east we go, I think there's a lot of risk. And I think even in some of the big five. Let's say big five countries, there's still some financial challenges that exist. You know, there's big organizations that, that struggle to balance the books financially.

And you see these transfers, you see these investments because the sector needs that investment. It needs to operate within, you know, those, those, those, uh, financial transactions. And so, you know. When, when a country or when a a a region is faced with some of these challenges, uh, in society, in in regular financial sector, the football sector is absolutely also gonna be challenged with those same things.

So it's important to remind ourselves that football exists within that society. It's a mirror of that society. So when you see these things. In Eastern, Northern, Southern, Western Europe, you're also gonna see it in, in football entities that are, that are placed there. Right. Uh, maybe one last question before I let you go.

Um. What would you say, you know, how important it is for whoever's going to be setting up those, uh, compliance programs for the football clubs that they have, uh, you know, an existing knowledge of the specific field? I mean, I mean, football, uh, I mean, I mean this is a, this is actually quite an important question because obviously, uh, all these people or these companies that provide it services, they are used to working within the financial, uh, services sector and, uh.

Most of them, I assume, have no such knowledge, you know, of the, of how the football world works. So do you view this as a prerequisite to be able to implement those programs successfully? Or would you say that this is not, not that relevant? Yeah, I think it's very, it's a very good point and it's something that, you know, sort of, I reminded or, or, or shared with everybody how long it took me.

To, to get my feet under me and to understand how sports works. But I do wanna preface that with, we can't let, so, so sport always talks about the specificity of sport and it's a, it's a mouthful. It's difficult to, to often say, but how what happens in sport is sort of different from what happens everywhere else.

But we can't sort of be. In a position where we say there's a different set of rules if they're financial transactions in football from financial transactions that happen across Europe. So, so there has to be that harmonization and we have to be able to, to, to make sure that we, we establish the regulatory and compliance regimes to be able to look at these sectors.

Yes, the experience of understanding how football ha how football financial flows happens, but not giving sort of that. You know, easy way out to not comply. Right? Uh, I think, you know, something that we talked about in the pre-show that, uh, that I also wanna mention here is. You know, anywhere where financial institutions now are handling sports or football, um, transactions or, or banking within clubs, they're seeing these transactions, they're seeing these financial movements.

So it's, it's right, it's a right time to start to focus on that and, and, and identify. You know, what the risks are in the sector and, and start to, to really, um, you know, focus in on what's suspicious and what, you know, what, what way we can harmonize, um, you know, the, the movement of money and understand when it hits that formal financial sector.

Does it raise a flag? Are we looking at it? Are we asking, following up those questions as to who the ultimate beneficiary owner, who's, you know, involved in, in holding the accounts? And it largely hasn't happened to date, uh, in football. And so that's something really to flag. Uh, we, we, we, we should involve all the stakeholders in being involved, um, in, in this, um, being part of the solution, but also not making it where it.

It has its own rules and it's almost ungoverned. Right. Well, listen, Nick, uh, I feel like I could talk to you forever about this. This is a, a topic very close to my heart, but unfortunately we will, we want to end it here. Um, I thank you very much for joining me today and, uh, I hope we can. Maybe repeat this, uh, in a foreseeable future.

Thanks a lot, Philip. I really enjoyed it and hopefully our listeners uh, also enjoyed it. I look forward to two of.