Sheikh, Blatter and Mole

Updated 3rd June as events have unfolded regarding the scandal at FIFA.

How game theory, dollars and the efforts of one investigative journalist have brought accountability to FIFA.

As certain individuals, associations and European banks have found out recently, if the money you are handling happens to be in dollars or relates to a US registered entity (or exchange) you fall under the jurisdiction of US law – which potentially extends to any country with an extradition treaty with the States.

Why that is the case is, in part, explained in this article in the Washington Post. Simply put, if you want to do business in the States you accept you can be sued from the States. And ‘business’ may mean just one meeting or transaction.

The implications are quite far reaching, as the scandal revolving around recent World Cup bids and FIFA has demonstrated.

What began with the sole efforts of investigative journalist Andrew Jennings to uncover wrongdoing within FIFA, snowballed after he was contacted by the FBI. You can read a fascinating account of his efforts  here to give the Washington Post their second plug of the day.

The story of how Jennings went fishing for and landed a ‘mole’ within FIFA, is a lesson for any errant organisation who thinks their information is contained.

sheikh blatter and mole
From left – Sheikh Hamad, president of the Qatar FA; Sepp Blatter acting president of FIFA; Andrew Jennings – the man who established the ‘mole’ within FIFA.


 The FBI’s own efforts eventually led the US Department of Justice on the 27th May, to ask the Swiss authorities to arrest seven senior FIFA officials, as well as others, as they continue to investigate ‘bribery, racketeering, money laundering, fraud and other related crimes’. The Swiss launched their own enquiries into the 2018 and 2022 bidding processes at the same time.

In the aftermath, Sheikh Hamad Bin Khalifa Bin Ahmed al Thani, the president of the Qatar Football Association has been forced to defend the integrity of their winning bid to host the 2022 World Cup. He had hoped on the support of the re-elected President of FIFA, Sepp Blatter, but yesterday Blatter resigned for reasons that were not convincing given his euphoria at his re-election the previous Friday.

The speculation is that there is a ‘smoking gun’ – that Blatter himself may be implicated in some way. And the US Department of Justice have made it clear that their investigations are just beginning and they will seek to bolster their pile of evidence through the use of ‘plea bargaining’.

The DoJ hope that those already under suspicion will accept the first-mover immunity, or a lesser charge, that can be given to those who plead guilty and implicate others. So, they are looking for one or more of those already charged to essentially become an informant.

They have already agreed a deal with Chuck Blazer, the former FIFA executive and Mr Blazer has already begun making revelations. A Sky news article has a quote that, among other defendants, there will be, ‘a race to see who will flip on (Blatter) first’.

Whether someone under suspicion would choose to do so relates to an area of decision-making known as ‘game-theory’, to which the late John Nash, the subject of the film ‘A Beautiful Mind’, contributed so much. There comes a tipping point in the plea bargaining process, where an individual finds the benefits to themselves of revealing all, overwhelms the benefits to the group of remaining silent.

What these events will ultimately mean for the Shiekh Hamad’s World Cup in Qatar is not certain – they would, no doubt, pursue significant reparation costs, even if some wrongdoing was found and the event relocated.

As for Blatter, he plans to continue his duties until a replacement is found. Whether that will include travelling to the Women’s World Cup in Canada, given the extradition treaty that exists between Canada and their southern neighbour remains to be seen.

Post his resignation, Blatter was apparently given a ten minute standing ovation by staff at FIFA – I wonder if Andrew Jennings’ mole was among them.

Legal over-reach?

While many of us might be celebrating Blatter’s resignation, the whole process does raise some serious concerns about the reach of US legal jurisdiction.

Hedge fund manager John Hempton writes an excellent blog and here you can read how he views the DoJs actions as undemocratic. I’d point out that Mr Hempton is no apologist for the crimes FIFA is accused of. He spends a lot of his time discovering fraudulent corporate activity and outing those behind it.

And then we have the US extradition request being fought by Navinder Singh Sarao, a futures trader from Hounslow, who is charged with ‘spoofing’ and prompting the so-called US stock index ‘flash-crash’ in November 2010. Bail has been set at £5 million, but in a classic legal ‘catch-22’ he can’t meet it as he is the subject of a US freezing order over all his assets.

I don’t know him at all, but I do know something about the structure of stock index futures markets in the States and Asia and there isn’t the room here to explain everything technical relating to this case. I find the accusation that his activity was especially egregious and that he pushed the first domino that toppled a knowable chain of other dominoes hard to prove – he wasn’t trading at the time and crashes did not occur on other days he was. Regulators would do well to look at those flash trading firms behind the other dominos stacked in the chain – you can read about them here.

And Sarao’s treatment is somewhat harsh, given the lack of success in the States in bringing any sort of accountability against certain high profile individuals.

Large corporations, like some European banks have received enormous fines that I am not arguing against – but when I see Dick Fuld, the former head of Lehman Bros, arguing again this week that he was running a prudent organisation and that what happened was all the government’s fault, with only an grilling in front of a House Oversight Committee as a chastisement, it does not seem fair.

Anyone for 500 euro notes?

Of course, the other implication of all this is that if you do want to earn some illicit income from the bidding process for a worldwide sporting event, don’t do it in the States and don’t do it in dollars.

Europe would seem far better as it has two advantages. Firstly, one wonders if the Eurozone would ever have looked this closely at FIFA. Andrew Jennings certainly doesn’t seem to think so.

And, secondly, rather than dollars there is the 500 euro note – there are apparently 609,908,558 in circulation as at the end of April, according to the European Central Bank’s own website. But, I’ll discuss the impact of these so-called ‘Bin Ladens’ (a nickname given when we knew he existed, but not where) in another post.


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