The King of Beers, FIFA and the FCPA
The World Cup soccer tournament is the most popular sporting event in the world. This quadrennial extravaganza captures the attention of citizens all across the globe. In 2014, the tournament reached a television audience of 3.2 billion people with approximately 1.013 billion tuning in for the final match.[i] 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.[ii]
While FIFA offers lucrative business opportunities for its sponsors, there is a potential down side to doing business with this organization. In recent years, there have been claims of widespread corruption within FIFA. In May 2015, for example, the United States Department of Justice (“DOJ”) filed an indictment against fourteen defendants alleging wire fraud, racketeering, and money laundering.[iii] Later that year, the DOJ filed a superseding indictment, which charged an additional sixteen defendants and added new charges against some of the original defendants.[iv] The 92-count 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.[v]
The DOJ’s prosecution is still in the early stages and it remains uncertain how many additional individuals and entities will be implicated. However, to date, twelve individuals and two sports marketing companies have already pleaded guilty for their roles in the corrupt scheme resulting in more than a $190 million in forfeiture.[vi] Since the DOJ’s announcement, authorities in several other countries including Brazil, Costa Rica, Argentina, Switzerland and the United Kingdom have commenced their own inquiries into FIFA and related individuals and organizations.
Sadly, the revelations of FIFA’s corruption only confirmed what many have suspected for years: bribery and corruption are business-as-usual within the organization. Indeed, in June 2014, almost a year before the initial indictment, HBO’s Last Week Tonight host, John Oliver, delivered a comedic analysis of FIFA’s heavy-handed and corrupt business practices.[vii] The fact that FIFA’s corruption was a poorly kept secret may present significant problems for FIFA’s sponsors. Not only is its affiliation with FIFA a potential threat to a sponsor’s brand reputation, but some argue that the sponsorship fees enabled and funded FIFA’s corrupt schemes.
To date, none of FIFA’s sponsors is directly implicated in the corruption scandal.[viii] However, that does not mean the issue is settled. The investigations are on-going and it remains unclear how closely the investigators have scrutinized the relationship between FIFA and its sponsors. Moreover, because the heart of the corruption scandal is focused on bribe payments to FIFA, a non-governmental entity, there has not been a lot of discussion of the Foreign Corrupt Practices Act (“FCPA”), which prohibits the bribery of foreign government officials. However, in the advance of the 2014 World Cup, a controversy emerged that prompted FIFA to directly engage with the Brazilian government and demand governmental action for the exclusive benefit of one of its sponsors, the King of Beers. In so doing, Budweiser was exposed to significant FCPA risk.
In this article, I will analyze how Budweiser’s sponsorship of the 2014 World Cup exposed it to significant FCPA risk. I will then identify the warning signs that should have put Budweiser on high alert of potential FCPA violations. Finally, I will discuss a three-phased strategy to directly confront emerging FCPA issues and techniques for mitigating this risk moving forward.
FIFA and Budweiser
FIFA, a not-for-profit organization established under Swiss law, was founded in 1904.[ix] Today, with approximately 209 member associations across the world, FIFA has a greater global reach than the United Nations.[x] The organization’s stated purpose “is to improve the game of [soccer] constantly and promote it globally in the light of its unifying, educational, cultural and humanitarian values, particularly through youth and development [programs].”[xi] To that end, FIFA invests tremendous sums of money for soccer development projects throughout its 209 member associations. These projects finance programs that teach children tolerance and non-violence, encourage the participation of girls and women in sports, and provide jerseys and equipment to underdeveloped regions as a means to “foster peace after periods of conflict” and to “restore a sense of normality among children affected by protracted violence.”[xii]
FIFA’s status as a not-for-profit organization does not mean it is not a revenue generating powerhouse. Its laudable philanthropic efforts aside, FIFA is a major business enterprise that has achieved significant commercial success. The World Cup, FIFA’s marquee event, is the most watched sporting event in the world, and the 2014 tournament generated $2.6 billion in profit for the organization.[xiii] A significant amount of FIFA’s revenue comes from sponsorships.
FIFA offers a three-tiered sponsorship structure. The top tier sponsors, the “FIFA Partners”, have the highest level of association with the organization. Their partnership extends beyond the World Cup to all FIFA tournaments and special events. The six “FIFA Partners” each pay between $25-50 million annually for their respective sponsorship package.[xiv] The second tier sponsors, the “FIFA World Cup sponsors”, obtain global sponsorship rights to the World Cup and the FIFA Confederations Cup. This sponsorship level costs between $10-25 million per year.[xv] The bottom tier sponsors, the “Regional Supporters”, are local companies that receive World Cup sponsorship rights limited to the host country. The “Regional Supporters” pay between $4.5-7.5 million per year.[xvi]
Budweiser, owned by Anheuser-Busch InBev (“AB InBev”)[xvii], has been a “FIFA World Cup sponsor” since 1986. On April 27, 2006, Budweiser announced the extension of its sponsorship agreement to include the 2010 and 2014 World Cup tournaments.[xviii] Budweiser’s sponsorship package included category exclusivity, which ensured it would remain the official beer sponsor through the 2014 tournament. In addition to traditional sponsorship benefits such as the use of official tournament marks and logos for promotional purposes, on-field signage and outdoor billboards, Budweiser also acquired exclusive pouring rights at all World Cup venues.[xix]
During the 2014 World Cup in Brazil, the Budweiser brand was a ubiquitous presence. Most notable, Budweiser converted an existing building along the world famous Copacabana Beach into the Budweiser Hotel.[xx] This venue hosted special events, concerts and parties for international VIPs, celebrities and fans. On game days, Budweiser Beer Gardens provided a festive pre-game gathering point for fans to enjoy live-music and drinks. And, of course, Budweiser and Brahama, a local brand owned by Budweiser, were the only beers available for sale inside the stadiums. More than 3 million units of beer were sold at stadium concessions during the month-long tournament.[xxi] In looking back at the 2014 World Cup, Budweiser stated: “the results were extraordinary, leaving the organization excited for what’s to come in 2018.”[xxii]
Budweiser’s success as a sponsor of the 2014 World Cup may have come at a significant cost. In October 2007 when FIFA announced the host country for the 2014 World Cup, Budweiser’s pouring rights for the tournament, which it acquired in the 2006 sponsorship agreement, effectively became worthless. That is, at the time of the announcement, Brazilian law prohibited the sale of alcohol at soccer venues. As will be discussed in more detail below, the road from an absolute alcohol ban to the sale of more than 3 million units of beer is rife with red flags that should have triggered significant FCPA concerns for Budweiser.
2014 World Cup: From Beer Ban to Millions in Sales
In 2003, amid concerns of escalating violence at soccer matches, Brazil banned the sale of alcoholic beverages at soccer stadiums.[xxiii] The ban addressed an important public safety concern as many attributed the disturbing number of deaths at soccer matches to alcohol fueled violence. While the data is inconclusive as to the impact of the ban, there is no question the law seeks to serve an important public interest.
On October 30, 2007, FIFA unanimously selected Brazil as the host county for the 2014 World Cup.[xxiv] At the time of the award, Brazil’s alcohol ban was in full effect. While the specific details of the FIFA World Cup bid process are cloaked in mystery, the available public information reveal that a prospective host country’s Bid Committee, a non-governmental entity, is required to submit a signed “Bidding Agreement” and signed “Hosting Agreement” along with its bid package.[xxv] These agreements require the Bid Committee to obtain certain governmental guarantees related to tax exemptions for FIFA and its sponsors, work permits, security, and various other legal issues. As part of its 2007 bid package, the Brazilian Bid Committee obtained a governmental guarantee from then-president Luiz Inácio Lula da Silva indicating there would be a change to the alcohol legislation.[xxvi] However, the proposed repeal of the alcohol ban was very controversial and Brazil’s Health Minister and members of Brazil’s Congress called for the ban to be maintained.[xxvii] Lawmakers opposed to lifting the ban delayed passage of the revised law – and, more than four years later the alcohol ban still remained in effect.
In early 2012, FIFA, having just completed an agreement extending Budweiser’s World Cup sponsorship to include the 2018 World Cup in Russia and the 2022 FIFA World Cup in Qatar[xxviii], grew increasingly impatient with the lack of movement in repealing Brazil’s alcohol ban. However, instead of working with the host country to develop a solution to address the issues of alcohol-induced violence and public safety, FIFA publically demanded that Brazil change its laws. Most notably, FIFA’s Secretary General, Jerome Valcke stated:
“Alcoholic drinks are part of the FIFA World Cup, so we’re going to have them. Excuse me if I sound a bit arrogant but that’s something we won’t negotiate . . . The fact that we have the right to sell beer has to be a part of the law.“[xxix]
As an aside, earlier this year Mr. Valcke was fired by FIFA, and is currently under criminal investigation by Swiss authorities relating to various bribery and corruption schemes.[xxx]
In May 2012, amid intense pressure from FIFA, a Brazilian congressional committee voted of 15-9 to approve the “World Cup bill”, which permitted in-stadium alcohol sales during the World Cup, among other things.[xxxi] The legislation then passed the Brazilian Senate and was signed into law by President Dilma Rousseff in June 2012.[xxxii] With the stroke of the pen, FIFA prevailed and, in so doing, created a lucrative market for the exclusive benefit of a single sponsor, Budweiser. Budweiser capitalized on this opportunity selling more than 3 million units of beer at stadium concessions during the tournament.
To date, there is no public information suggesting that FIFA engaged in any illegal or corrupt conduct in dealing with the Brazilian government. However, it is beyond question that FIFA applied tremendous pressure to compel the passage of a controversial law that set aside public safety concerns in favor of commercial interests. FIFA’s direct engagement on this issue coupled with its history of using dubious tactics for its own self-interest raises many ethical questions on both sides of the negotiations. For Budweiser, however, as the sole beneficiary of this legislative triumph, FIFA’s conduct should have sounded FCPA warning bells throughout the organization.
The FCPA: Budweiser’s Exposure and Red Flags
Enacted in 1977, the Foreign Corrupt Practices Act (“FCPA”)[xxxiii] was developed in response to revelations of widespread global corruption discovered during the Watergate investigation. Specifically, Congress learned that major American corporations were using secret slush funds and falsifying corporate financial records to conceal corrupt payments including the bribing of foreign officials. To address these concerns, the FCPA was structured to achieve two goals. First, the legislation sought to increase transparency and accuracy in an organization’s corporate financial records. To that end, the FCPA includes the so-called accounting provisions, which requires an organization to keep accurate financial books and records and to maintain a system of internal accounting controls. Second, Congress hoped to raise the standards of ethical business conduct by banning the practice of bribing foreign officials. The FCPA’s anti-bribery provisions were developed to meet this second goal.
The anti-bribery provisions prohibit offering or giving anything of value, directly or indirectly, to a foreign government official for purposes of obtaining or retaining business. For purposes of this discussion, the following enforcement standards are relevant:
• The anti-bribery provisions do not include a minimum threshold amount for an improper payment or gift. Instead, the transactions are evaluated on a case-by-case basis.
• The use of the phrase anything of value is intentionally broad and captures a wide range of benefits including cash and cash equivalents, extravagant gifts, services, charitable donations, political contributions, loans, payment of travel expenses, tickets to sporting events, entertainment outings, job offers, etc.
• The FCPA’s prohibitions are not limited to direct interactions with foreign government officials. Indirect conduct through third-party agents is likewise prohibited. In other words, an organization cannot circumvent the statutory prohibitions by engaging third-party agents to perform corrupt acts on its behalf or for its benefit.
In the context of the 2014 World Cup, 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. Because Budweiser did not have any direct dealing with the Brazilian government, its exposure under the FCPA is premised on a theory of indirect liability. That is, 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.[xxxiv] Budweiser is not any less culpable under this scenario than if it had directly negotiated the bribe payments with the Brazilian officials.
The above hypothetical provides a clear and obvious illustration of an FCPA violation triggered through the use of third-party agents. That said, it is unlikely that such a blatant corrupt 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.[xxxv] This standard prevents an organization from insulating itself from liability by burying its head in the sand. More to the point, an organization cannot ignore red-flags signaling improper conduct by its third-party agents.
To date, the allegations of corruption against FIFA have focused on the organization as a recipient of corrupt payments. Enforcement agencies have not alleged that FIFA was a payor of bribes or that it 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 Brazilian legislature repeal the alcohol ban; 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 responded to the following red flags that put the organization at risk:
• FIFA’s Reputation. While the indictment against FIFA was not filed until May 2015, the allegations confirmed what many knew, or suspected, for decades: FIFA is a corrupt organization. In fact, in announcing the indictment Attorney General Loretta Lynch stated that corruption within FIFA “is rampant, systemic, and deep-rooted . . . [and] spans at least two generations . . . .”[xxxvi] 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.[xxxvii] MasterCard, a sponsor from 1990-2006, sued FIFA for this fraudulent behavior and, ultimately, settled the suit for $90 million.[xxxviii] In 2011, two high ranking FIFA officials were suspended amid allegations of bribing voters in the 2011 FIFA presidential election.[xxxix] Around that same time, eight members of FIFA’s executive committee were accused of selling their votes for the 2018 and 2022 Word Cups.[xl] 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 impeachment charges against 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.[xli] 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, it was reported that Andrade Gutierrez SA, which was awarded contracts totaling nearly 25% of the total construction budget, and Odebrecht, which was awarded stadium contracts worth billions, increased their political contributions from $73,180 in 2008 to $37.1 million in 2012, and $90,909 in 2008 to $11.6 million in 2012, respectively.[xlii] Last year, Andrade Gutierrez SA admitted it paid bribes to obtain World Cup construction contracts and, more recently, entered into a leniency agreement with the Brazilian government through which it agreed to pay $286 million in fines.[xliii] Oderbrecht is also under investigation and is said to be cooperating with Brazilian officials.[xliv] 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 implemented by the Brazilian government 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. Alcohol restrictions at sporting events are not unique to Brazil – stadiums all across the globe have implemented similar measures to address fan violence and other alcohol related concerns. Ironically, even Jerome Valcke – FIFA’s Secretary General and main advocate for the repeal of the ban – acknowledged, after the fact, that he “was amazed by the number of people who were drunken and the level of alcohol” and noted that it is “something [FIFA has] to look at.”[xlv] Given that the ban served an important public interest, FIFA’s uncompromising – the right to sell beer has to be part of the law – approach to engaging Brazilian government officials was particularly disturbing. That is, 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.[xlvi] In addition, Brazil’s Health Minister publically urged for the ban to be maintained.[xlvii] Thus, the repeal was anything but a perfunctory governmental action and likely required some 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.”[xlviii] 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”,[xlix] the fact of the matter is they are not and their absence would not inhibit a successful staging of the tournament. Without alcohol the game can go on. 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.[l] Recognizing that the in-stadium sale of alcohol does not fundamentally impact the viability and overall success of the World Cup tournament, the question becomes what was FIFA’s motivation to relentlessly pursue the repeal of the alcohol ban? The answer is simple: FIFA was determined 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 regarding the organization’s business practices.
• 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.[li] 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 the sale of alcohol in their respective sports venues.[lii] 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. How was the issue addressed in the new agreement? What, if any, changes in contract terms, conditions, sponsorship fees or payment structure were prompted by this issue? Was any portion of Budweiser sponsorship fees designated to support FIFA’s lobbying/negotiations with any of these 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.
As these red flags became apparent, Budweiser should have begun the process of mitigating its exposure to potential FCPA violations.
Responding to the Red Flags
While it is unknown what, if any, internal action Budweiser undertook, an organization confronted with these warning signs should have developed a three-phased strategy to mitigate its FCPA risk. The first phase of the strategy is to “stop the bleeding”. An organization must take immediate, proactive steps to stop high-risk conduct from continuing. Second, the organization should conduct an internal investigation to assess whether, and to what extent, it may have violated the law. An effective internal investigation allows an organization to get out ahead of troubling issues, confront challenges head-on, and prepares it to answer the difficult questions when the authorities come knocking. Third, the organization should apply the lessons of the experience to mitigate its risk in future transactions.
Using Budweiser and FIFA as our example, the following will describe some tactics within each phase of the strategy:
Phase 1: Stop the Bleeding. As the FCPA warning signs began to crystalize, Budweiser’s should have taken immediate action to stop the continuation of high-risk conduct. For example, recognizing the relatively low threshold for what constitutes a corrupt payment (i.e. “anything of value” which includes a wide range of benefits – not just cash payments), Budweiser should have implemented new processes to quarantine and more closely scrutinize any unusual or extra contractual requests from FIFA in the run-up to the 2014 World Cup. Any requests for additional cash payments, political contributions, charitable donations, special access to the Budweiser hotel, VIP privileges to Budweiser events, employment opportunities for “friends of FIFA” or game tickets should have been fully vetted and approved only where there was a clear, non-corrupt business purpose for honoring the request. Importantly, Budweiser should have mandated clear documentation requirements as part of this new process so it can show that high-risk transactions were cleared only after undergoing a detailed vetting process. Likewise, Budweiser should have maintained documentation for any requests that did not clear the vetting process. Having a clear paper trail of the things it did “right” may prove helpful in a future investigation.
In addition, Budweiser should have performed an immediate analysis of its sponsorship agreements to identify what, if any, restrictions FIFA was subject to in spending Budweiser’s sponsorship fees. Budweiser then should have sent a letter to FIFA enumerating all restrictions and relevant contract provision and confirming its expectation that FIFA abide by these provisions. Budweiser should also have requested a written statement from FIFA certifying that is has complied with the referenced contract provisions. Similarly, all future payments to FIFA should include a cover letter confirming Budweiser’s understanding of how the payment will be used and reference any contractual restrictions on the use of the money.
Budweiser should also exercise any audit rights under the sponsorship agreement. Some agreements include the right to inspect the sponsored entity’s books, records, and documents in the event the sponsor believes there is a breach of the agreement (or as a matter of right). If there was no contractual right, Budweiser should have made a written request to audit FIFA’s records relevant to the sponsorship agreement. While it is likely that such request would have been denied, Budweiser, in making the request, will be able to demonstrate that it made an affirmative effort to exercise oversight over FIFA’s contract performance. Moreover, the denial could serve as persuasive evidence that FIFA was actively shielding improper conduct from Budweiser. If FIFA was unwilling to cooperate, Budweiser should have performed a limited audit of FIFA’s contract performance using its internal records. Upon completion of the audit – whether as a matter of contractual right, by agreement, or through internal records – any issues of concern should have been documented and communicated directly to FIFA with suggested corrective actions.
Also, in early 2012, as FIFA was publicly increasing pressure to repeal the alcohol ban, Budweiser should have recognized that FIFA’s arrogant posturing was a precursor to potential improper conduct. As such, Budweiser should have taken action to bridge the gap between the FIFA and the host country. For example, instead of dismissing the legitimate concerns of alcohol induced violence, Budweiser should have directly confronted the issue and offered a series of strategies to mitigate the risk of excessive alcohol consumption. As a sponsor of many large sporting events, festivals, and concerts, Budweiser has tremendous expertise on this issue and may have been able to present a “third option” that allowed the sale of alcohol, but also effectively addressed the concerns of the Brazilian government. In addition, Budweiser could have proposed a public awareness campaign to promote responsible alcohol consumption, offered to provide additional security specifically trained to de-escalate alcohol related confrontations, and implemented an in-venue reporting system for potential incidents with rapid response teams placed at strategic locations throughout the arenas. Instead of relying on FIFA’s heavy-handed and, perhaps, corrupt tactics, Budweiser could have gained the goodwill of the host-country by delivering a win-win resolution to the issue. More importantly, Budweiser’s effort in finding a reasonable middle ground could have gone a long way in removing the taint of controversy and corruption from the decision to repeal the ban.
If unsuccessful in developing a viable “third option”, Budweiser would have been confronted with a difficult decision. On the one hand, it could have deferred to FIFA to resolve the impasse and hope it operates within the law. On the other hand, and as a last resort, Budweiser could have abandoned the pursuit of in-stadium beer sales. While there are insufficient facts to comment on whether the latter option is appropriate, necessary or wise, such action can produce a number of benefits that must be considered in the overall analysis. First, walking away from the opportunity sends a clear message to the entire organization that Budweiser’s code of conduct and anti-bribery/corruption policies are not just words on paper, but guiding principles for doing the business the “right” way. By this example, employees at all levels of the organization will be empowered to make the hard choices for the right reasons. Second, taking such a principled stand could have significant public relations value as it signals Budweiser’s unblinking commitment to ethical business practices. Third, enforcement agencies may view this decision as a testament to the effectiveness of Budweiser’s anti-corruption program and overall commitment to ethical practices, which may result in reduced penalties for any existing violations. Finally, in an effort to comply with Brazilian law, Budweiser’s business team may develop new and innovative strategies for connecting with consumers. These innovations could produce long term value as Budweiser is likely to encounter similar restrictions in the future.
After effectively neutralizing the risk of new or continuing violations, an organization should move forward with Phase 2 of the strategy. That is, Budweiser should have completed a detailed internal investigation to determine whether the organization violated the FCPA.
Phase 2: Internal Investigation. After taking appropriate measures to “stop the bleeding”, Budweiser should have commenced a full internal investigation to assess whether there are any existing FCPA violations. The investigation should have focused on Budweiser’s role in the effort to secure the repeal of the alcohol ban. More specifically, it must answer three critical questions: (1) What did Budweiser know? (2) When did it know it? (3) What, if anything, did it do about it? At minimum, the investigators should have:
• Interviewed all employees responsible for administering the sponsorship agreement;
• Interviewed all employees involved in negotiating the contract extension through the 2022 World Cup;
• Collected and reviewed all communications between FIFA and Budweiser including email, text messages, instant messages, etc.; and
• Reviewed all transaction information between Budweiser and FIFA including invoices, payment authorizations, extra-contractual requests for payment or items of value, related travel and entertainment expenses, unusual or suspicious payments or transfers, etc.
As part of the investigation, Budweiser should have re-evaluated the sponsorship fee and ensured that it can establish a business case for the fee amount, that the fee amount is reasonable for this type of agreement and that the payment structure does not include any unspecified premiums or fees for vaguely described benefits.
Of particular interest is an analysis of the fee amount negotiated in the 2011 agreement (extending the Budweiser’s sponsorship through 2022) as compared to 2006 agreement (extending Budweiser’s sponsorship through 2014). At the time of the 2006 agreement, the host city for the 2014 tournament was not yet selected and, thus, the controversy surrounding Brazil’s alcohol ban had not yet emerged as an issue. By 2011, however, not only was Budweiser aware of Brazil’s alcohol ban, but it was also known that the selected host countries for 2018 (Russia) and 2022 (Qatar) had similar restrictions on in-stadium alcohol sales.[liii] Any increase in the sponsorship fee or change to the payment structure should have been carefully analyzed and justified by legitimate business purposes. An unexplained premium or increase in fee could be very problematic. Similarly, the 2011 agreement should be evaluated to determine if, and how, the alcohol bans were addressed.
As a final element of the investigation, Budweiser must carefully audit the organization’s books and records. The accounting provisions of the FCPA, which are separate from the anti-bribery provisions, require an organization to keep its financial books and records with sufficient detail so they accurately reflect the underlying transaction. Importantly, a violation of the accounting provisions does not require evidence of a corrupt transaction. Instead, the focus is on the manner in which a transaction is recorded. For example, a transaction that my otherwise be legal may still trigger a violation of the accounting provisions if the organization attempts to conceal the transaction or mischaracterizes its purpose. Budweiser, therefore, must scrutinize all of its payments to FIFA and ensure they are accurately recorded and supported with sufficient information to detail the transaction. Any off the books transactions, payments that are inconsistent with the terms of the sponsorship agreement or entries with vague descriptions (e.g. “miscellaneous fees”) should be red-flagged and further investigated.
By conducting a complete and thorough internal investigation, Budweiser will get out ahead of the story and have a detailed understanding of its potential FCPA exposure. Not only will it be able to begin the process of implementing necessary corrective actions, but it will be in a strong position to cooperate with enforcement agencies should it become a target of an investigation. Moreover, depending on the severity of the conduct discovered, Budweiser may elect to self-report any violation in the hopes that it will able to negotiate a deferred prosecution agreement, a non-prosecution agreement or some other reduction in penalties.
Phase 3: Looking Forward. Even if Budweiser dodges the FCPA bullet, the revelations of bribery and corruption within FIFA coupled with allegations of political corruption in Brazil should have been a major wake-up call for the organization. While the business case for sponsoring high-profile events is obvious, sponsors like Budweiser must also consider the potential legal exposure and reputational risk from associating with organizations like FIFA. Budweiser, and organizations like it, should take the lessons of the 2014 World Cup and apply them to future sponsorship negotiations. The following are some suggested strategies for managing corruption risk:
• Risk Assessment. In evaluating a proposed sponsorship agreement, an organization should treat the sponsored entity like any of its third-party vendors, suppliers or agents. That is, the organization should assess the degree of risk presented by the proposed contractual relationship with the sponsored entity. The assessment should rate the risk of both the sponsored entity (e.g., FIFA) and the location where the sponsored event will take place (e.g., Brazil).
• Internal Controls. After assessing the risk of a proposed sponsorship agreement, the organization should develop internal safe guards to mitigate risk and/or serve as an early detection system. The organization should also consider developing training programs targeted at specific employees to introduce, or reinforce, related policies, procedures and processes.
• Contractual Terms. An organization should negotiate contractual terms and conditions that promote transparency, protects the sponsor’s investment, and limits corruption risk. To those ends, an organization should consider including the following in the sponsorship agreement:
• A detailed description of the benefits to be granted to the sponsor and the sponsored entity’s obligations to the sponsor.
• Contractual representations and guarantees that sponsorship fees are only for the performance of agreed to activities and services reflected in the agreement.
• Contractual prohibition on making corrupt payments to foreign government officials. The agreement should also clearly define key terms like “corrupt payments” and “foreign governmental officials” consistent with the FCPA and similar anti-corruption legislation.
• Contractual representation and warranties that the sponsored entity and its employees and agents will comply with the FCPA, other applicable anti-bribery statutes and the local laws of the host country. The agreement should also require the sponsored entity to execute periodic certifications stating that it is fully aware of its responsibilities under the FCPA and other applicable anti-bribery laws and that it has not engaged in any conduct in violation of these laws.
• A contractual provision that authorizes the sponsor to terminate the agreement if the sponsored entity engages in conduct that may damage the reputation of the sponsor. This morals clause should be tailored to specific conduct that could reflect poorly on the sponsor. This provision should also specify the criteria for determining whether certain conduct violates
• In connection with the morals clause or any other provision authorizing the sponsor to terminate the relationship, the sponsorship agreement should include a suspension clause. As is suggested by its name, this clause allows the sponsor to suspend its obligations until it makes a final decision on whether to terminate the agreement.
• A contractual provision that requires the sponsored entity to indemnify the sponsor for any violations of anti-corruptions laws triggered by the sponsored entity. The indemnification provision should be as broad as possible and include reimbursement for the costs of any internal investigations, legal fees, fines and penalties.
• A contractual provision that allows the sponsor to clawback payments when the sponsored entity breaches certain provisions of the agreement. The clawback provision can be tied to specific conduct (e.g., engaging in corrupt conduct) or to an unspecified breach of a material term of the agreement.
• A contractual provision authorizing the sponsor to audit the sponsored entity to ensure compliance with the terms of the sponsorship agreement. Depending on how the provision is drafted, these audit rights can trigger as a matter of right (i.e. sponsor has the right to audit sponsored entity’s books and records upon reasonable notice to the sponsored entity) or upon the occurrence of a specific event (i.e. sponsor has the right to audit sponsored entity’s books and records if it reasonably believes there is a material breach of the agreement).
While these and similar contract provisions are desirable for the sponsor, the sponsored entity may push back and request mutuality in the obligations, seek to significantly limit the scope of the provisions, or flat-out reject the provisions. However, even if the sponsored entity has greater leverage in the negotiation, proposing the above contract provisions can provide useful insight into whether the business values of the contracting entities are aligned. For example, the refusal of a sponsor’s request for a moral clause is revealing – and should cause the sponsor to pause and reconsider whether to move forward it the agreement.
• Create Leverage. Contract negotiations typically follow the “golden rule”: if you hold the gold, you make the rules. That is to say, the entity with greater leverage typically has more influence in deciding the terms of the agreement. An organization like FIFA takes full advantage of its negotiating power and generally dictates the terms of its sponsorships agreements. As such, it could be very challenging to obtain FIFA’s assent to any of the contractual provisions described above. An effective way to counteract this disparity in negotiating power is for all of the major sponsors to take collective action to ensure that an adequate level of transparency and anti-corruption standards are included as standard terms in all sponsorship agreements.
• Action Plans. Prior to any new engagement, a sponsor should develop an action plan to address high-risk scenarios that could trigger bribery and corruption issues. These plans should detail a step-by-step course of action for confronting these issues and neutralizing the risk. An organization should also develop training programs for key personnel so they are prepared to implement the action plans when the need arises.
FIFA has successfully leveraged the popularity of the World Cup into a revenue generating enterprise. While the World Cup presents lucrative business opportunities for FIFA’s sponsors, there is substantial risk in doing business with this organization. FIFA’s controversial and corrupt business practices significantly increases a sponsors’ risk of reputational harm and potential legal violations. While Budweiser may have successfully sidestepped the FCPA landmine in this instance, the story of the 2014 World Cup provides important reminders and lessons. Namely, an organization confronted with this type of scenario must be vigilant in identifying and confronting red flags. Moreover, as the threat becomes apparent, it must take immediate action to “stop the bleeding”, investigate whether, and to what extent, it violated the law, and take proactive steps to mitigate its FCPA risk in future transactions.
[v] Superseding Indictment, p.42, ¶102.
[viii] FIFA Partners include: Adidas, Coca-Cola, Wanda Group, Gazprom, Hyundai-Kia and Visa. FIFA 2014 World Cup Sponsors include: Anheuser-Busch InBev; Castrol; Continental; McDonald’s; Johnson & Johnson; Marfrig; Yingli Solar; Oi.
[ix] In response to the Indictment, FIFA filed a Victim Statement and Request for Restitution seeking restitution for the harm caused by its former officials (now defendants). FIFA’s filing provides a detailed summary of its history, organizational structure and philanthropic achievements. See p.5. The Victim Statement and Request for Restitution can be found here.
[x] Id. at p. 5.
[xii] See FIFA’s Victim Statement and Request for Restitution, pp. 7-8.
[xvii] For ease of reference, Budweiser and its parent company Anheuser-Busch InBev will be collectively referred to as Budweiser.
[xxxiv] See 15 U.S.C. §§ 78dd-1(a)(3); 78dd-2(a)(3); 78dd-3(a)(3).
[xxxv] See 15 U.S.C. §§ 78dd-1(f)(2)(B); 78dd-2(h)(3)(B); 78dd-3(f)(3)(B).
*This article is intended to be a source of general information. It is not intended to provide legal advice. For specific counsel or advice, please consult with an experienced professional.
**For any questions or comments, please contact Three Twelve Group by phone at 404.872.5615 or by email at firstname.lastname@example.org.