World soccer corruption, Africa’s ‘illicit financial flows’ and elite silences

FIFA photo

FIFA photo

By Patrick Bond, Durban

3 June 2015

The last week has provided extraordinary examples of how corruption erodes the resources and morals of an entire continent – Africa – in part because villains in South Africa made alliances with wicked brothers in Switzerland, Latin America, the Caribbean and, especially, the United States. We now know more about offshore centres of both reactionary finance and corrupt-corporate soccer. It’s long overdue they are exposed to a spotlight, even if those pointing that light want to leave certain features in the shadows.

On May 21, Africa’s “illicit financial flows” (IFF) looting was partially dissected by Nelson Mandela’s successor, Thabo Mbeki, in his urgent-sounding report to the African Union, Track it! Stop it! Get it!Mbeki’s bottom line:

Currently, Africa is estimated to be losing more than $50 billion annually in IFFs. But these estimates… often exclude some forms of IFFs that by nature are secret and cannot be properly estimated, such as proceeds of bribery and trafficking of drugs, people and firearms.

Or such as secret deals in minerals and oil; South Africa’s ruling party (under Mbeki’s leadership) made dodgy payments to shady characters in Nigeria, Texas and Saddam-era Iraq. Or tax giveaways by politicians; Mbeki’s 14 years as South Africa’s deputy president (1994-99) and president (1998-2008) witnessed the main corporate tax rate falling from 48% to 28%. Or exchange controls against capital outflows; Pretoria dropped its main exchange control – the financial rand – in 1995 and let the largest Johannesburg firms relocate to London in 1999, causing a massive increase in South Africa’s current account deficit due to “licit” offshoring of profits. These are unmentionables in Mbeki’s report: some of last week’s revealing elite silences.

On May 27, the US Justice Department and FBI alleged that the Zurich-based world soccer mafia known as FIFA exudes “corruption that is rampant, systemic and deep-rooted”. Yet two days later, world soccer dictator Sepp Blatter was re-elected head of the notoriously corrupt Zurich institution FIFA, which runs the World Cup. “Why would I step down? That would mean I recognise that I did wrong.” But on June 2, he did indeed promise to step down within the next nine months, as Justice Department pressure mounted enough to crack even Blatter’s arrogance. According to the New York Times’ explanation, “One high-ranking soccer official said Mr. Blatter had been advised by his legal counsel that continuing in his current position could make defending him against possible future prosecution more difficult.”

More than a decade ago, Blatter’s long-time FIFA ally, Jack Warner from Trinidad, allegedly demanded from Mbeki’s government a bribe of $10 million just before the May 2004 vote deciding the host country for the 2010 Soccer World Cup. The main competitor then was Morocco, whose kingdom apparently offered only $1 million to Warner, and hence was the loser by 14 to 10 votes. This is known because of testimony by a fellow bribee, Chuck Blazer, who controlled US soccer for many years, and who wanted $1 million from South Africa. Blazer, formerly a Warner crony but also recently prosecuted for soccer corruption, is being treated for terminal cancer in Manhattan and has turned state’s witness, along with Warner’s sons.

According to the Justice Department, after the 2004 vote, “the South Africans were unable to arrange for the payment to be made directly from government funds. Arrangements were thereafter made with FIFA officials to instead have the $10 million sent from FIFA – using funds that would otherwise have gone from FIFA to South Africa to support the World Cup.” The US agencies’ surveillance technology traced the $10 million to a slush fund benefiting Warner and his mates.

Corruption denialism

Foolishly, South African elites quickly circled the wagons. The then finance minister, Trevor Manuel (now a leader of Rothschilds Bank), rebutted, “I am not aware of any request for a bribe of any size.”

Mbeki was also denialist: “I am not aware of anybody who solicited a bribe from the government for the purpose of our country being awarded the right to host the World Cup… no public money was ever used to pay a bribe.”

Can Mbeki be believed? As president, he denied medicines to people living with AIDS 15 years ago, and so is credited (in a Harvard study) with the unnecessary deaths of at least 330,000 South Africans. Fortunately, protesters from the Treatment Action Campaign raised sufficient pressure to overturn his policies in 2004, at which point AIDS drugs became available and the country’s life expectancy rose from 52 then to 61 today, with 3 million people getting free generic medicines. So Mbeki was an especially odd choice to lead the IFF panel, especially given how corruption riddled his own regime became (e.g., his long-protected police chief Jackie Selebi, who was also head of Interpol, was owned by the local Mob). And especially given Mbeki’s role in the financial liberalisation that is today crippling the South African economy.

Finally, three days after the bribery story broke, FIFA’s local organiser in chief, Danny Jordaan, admitted a $10 million payment was indeed made to Warner’s accounts in early 2008. But he claimed it was for soccer “development” aimed at uplifting the African diaspora: “How could we have paid a bribe for votes four years after we had won the bid?” Disbelieving critics point out that the South African government kept this unprecedented “development” gift to Caribbean soccer a secret in 2010, and had quietly asked FIFA to deposit it directly into Warner’s notorious slush fund account.

In Jordaan’s defence it could be argued that bribing Warner was a sensible investment for the national interest, along with trotting out the octogenarian Mandela to visit him in Trinidad, done clearly against doctor’s orders. Others might then ask whether the illicit funding was really limited to just $10 million – in the context of a World Cup conservatively estimated to have cost South Africa $5 billion (but more like double that if all the unnecessary items plus a dramatic increase in the foreign debt are calculated).

Among the bills covered by taxpayers were $3.1 billion in construction costs for 10 stadiums (most are white elephants now), an unnecessary new $1 billion airport in Durban, $3.2 billion in profits sucked offshore by FIFA without taxation or exchange controls and the unquantifiable cost of degraded political rights, housing displacement and elite back-slapping. Brazil suffered far worse, with more graft and many more forced removals from Rio’s favelas – and much bigger pre-cup social protests in 2013-14 than even South Africa managed in 2010.

But even aside from these bribery revelations, the hangover from hosting the World Cup remains. Celebrating the FIFA bid victory back in 2004, Mbeki intoned: “We want to ensure that, one day, historians will reflect upon the 2010 World Cup as a moment when Africa stood tall and resolutely turned the tide on centuries of poverty and conflict.”

In reality, hosting the World Cup increased poverty and conflict here, just as happened in Brazil last year.

The US Justice Department completely neglected to mention these most corrupting aspects of FIFA’s rule. A year ago, on a BBC debate, I put it to Jordaan that he was implicated in FIFA’s white elephantism, reminding of how even he had once apologised for luring poor municipalities into building unneeded stadiums, and I complained that in the two most unequal major countries in the world, South Africa and Brazil, FIFA had a responsibility to democratise the World Cup model, not exacerbate inequality. Jordaan giggled in a disturbing way, and then simply cranked up his nationalistic rhetoric (for example, at 8:45 into the tape athttp://www.bbc.co.uk/programmes/p020r2wy).

This was well understood by business strategists, reflected in the May 2010 remarks of senior insurance industry underwriter Trevor Kerst: “FIFA pays no taxes and institutes exclusion zones around the stadiums where matches take place, and tax income is curtailed. Within these exclusion zones, only FIFA and its partners may sell any goods; nothing from these sales accrues to the government.”

Do US Attorney General Loretta Lynch and the FBI give a damn about the deeper economic and political corruption of our society in 2010, represented by elites like Mbeki and Zuma giddily rolling the country under Blatter’s FIFA steamroller? There is no evidence in her anti-FIFA documentation of any awareness, much less critique of the way over-commercialised sports create mega-project mania in cities.

Blatter’s initial rebuttal was that the charges were laid because a bitter US establishment lost the 2022 World Cup bid to Qatar, because Britain lost the 2018 bid to Russia (which in Ukraine is the main adversary of US foreign policy once again) and because Washington is “the number one sponsor of the Hashemite Kingdom, therefore of my adversary (Jordan’s Prince Ali)… There is something that smells” about the investigation, Blatter pronounced. Donning this ill-fitting victim mantle, he successfully rallied the majority of 203 country votes for his re-election as FIFA chief executive last Friday. South Africa was one of the countries voting for Blatter. No doubt authorities in Pretoria – and Jordaan’s SA Football Association – will continue scrambling with Blatter in coming weeks to creatively explain or disguise the full extent of the bribery.

A banker’s world, from Washington to Zurich to Jo’burg

But Blatter’s correct: the investigation does indeed smell, as does much else coming from the US Justice Department, because if there is anywhere deserving of corporate corruption probes to the extent of the FIFA investigation, it is Washington itself. Lynch is an especially dubious prosecutor, given her prior role in covering up the US banking system’s corruption by neglecting to pursue criminal charges against HSBC over money laundering associated with Mexican drugs or its Swiss subsidiary’s assistance to wealthy US residents’ illegal tax dodging.

Manipulation of currencies is another reflection of the way the world’s bankers loot the world, cheating even the City of London and Wall Street on interest rates and currency deals. The Washington model of “justice” is to charge bankers a fine for such crimes, so that no one is jailed, and then banks pass the bill back to their customers. The game continues.

In the same spirit, last week, South Africa’s Competition Commission gathered sufficient evidence of wrongdoing to allege that banks including BNP Paribas, Barclays, JP Morgan, Investec and Standard Chartered colluded to synchronise currency trading to rip off South Africans. But given prevailing power relations, you can safely bet no one will go to jail and at best a tokenistic fine will be levied.

Last Wednesday, the Swiss security forces were fully cooperative in arresting seven FIFA elites (though not Blatter) in a luxury Zurich hotel at Washington’s request. Yet it is no secret, either, that Swiss banks are even more cooperative when it comes to assisting African dictators and multinational corporations like locally headquartered Glencore, which was founded by the infamous apartheid ally Marc Rich (who fled prosecution in the US and was later pardoned by Bill Clinton in as his last presidential act in 2001). Rich’s protégé is Ivan Glasenberg, a Johannesburg-born self-made man who has become South Africa’s richest citizen, worth at least $5 billion.

But just as with Rich, who busted oil sanctions to aid apartheid, it’s partly ill-begotten wealth. As Mbeki’s report puts it, “the IFF risks inherent in a commodity trade with Switzerland will be substantially higher than in the equivalent transaction with Sweden” because of Swiss corruption, and he even includes mention of how the world’s largest commodity trader, Swiss-based Glencore, did various dubious deals to minimise taxation in South Africa, from where a large share of its profits are sourced. Mbeki was too frightened to mention the name Glencore, though.

The High Level Panel on Illicit Financial Flows was commissioned three years ago by the African Union and United Nations Economic Commission on Africa (UN ECA). But notwithstanding extensive resources, the panel didn’t turn up anything particularly surprising. Researchers at the UN ECA, Global Financial Integrity and the universities of Massachusetts, Witwatersrand and London have previously identified even larger IFFs.

One reason is that Mbeki’s team declined to explore the grey area between licit and illicit, in the examples noted above, especially capital control liberalisation and legal tax loopholes. They displayed an annoying habit of providing anecdotes about rip-off schemes using real-life examples, while failing to name and shame the perpetrators. In short, the Mbeki report confirms that he and other African elites are not the least bit serious about building a powerful social force to halt and reverse the damage. His denial of the illicit financial flow to Warner is just icing on the cake.

Instead, such a movement is being built in South Africa by activists confronting these corporations directly. One example is the network demanding that the Marikana massacre report given to President Jacob Zuma in March finally be released so that at least one firm’s obvious blame can be codified and quantified. There is no question that Lonmin – a mining house once termed “the unacceptable face of capitalism” by Edward Heath – will be criticised by Judge Ian Farlam for colluding with police to arrange the massacre of 34 of its workers on August 16, 2012. Lonmin’s top officials included a board director in charge of “transformation”, Cyril Ramaphosa, who 24 hours earlier wrote emails to the police and mining minister describing the wildcat wage strike then raging as “dastardly criminal.”

Ramaphosa is now second in command in South Africa, with a strong likelihood of succeeding Zuma as president in 2019. Ramaphosa had access to a $100 million World Bank loan to build 5500 houses for Lonmin in 2011, but only built three, explaining that Lonmin faced a profitability crisis after 2008. But Dick Forslund of the Alternative Information and Development Centre has proven that the firm had recently exported more than $300 million to Lonmin subsidiaries in the “hot money centres” of Bermuda and London. A classic case of what can generally be termed transfer-pricing profits, it was a supposedly legal tax practice. Given Lonmin’s power and Ramaphosa’s explicit endorsement of the company’s financial accounts, don’t expect a South African government investigation.

In search of accountability

The most critical trade unions – the Association of Mineworkers and Construction Union and the National Union of Metalworkers of South Africa – along with the Economic Freedom Fighters (EFF) political party, and radical civil society (e.g. Right2Know and the Marikana Support Committee) are bravely attempting to shift public opinion to tackle such sustained corporate corruption. But while the link between crony capitalism and state power is no better personified than by Ramaphosa, he retains the hope of many in big business (and even some liberals) for a cleaner, less clumsily-corrupt ruling party after Zuma goes.

In other words, accountability for this mess will be very hard to achieve. Just as appalling as Blatter’s FIFA re-election on Friday, on the day before, Danny Jordaan was selected as ruling-party mayor of the Nelson Mandela Metro (Port Elizabeth). The most sleazy of South African municipalities, Durban, is fairly certain to win the 2022 Commonwealth Games in three months’ time, and will bid for the 2024 Olympic Games. Mbeki will be given an even larger platform to pretend he wants to halt financial corruption.

The need for accountability goes to the very top of South Africa. The most visible personal case of graft was unveiled the same day the FIFA bosses were arrested: Zuma’s upgrade of his rural Nkandla village palace. It cost taxpayers more than $20 million, and catalysed a “Pay Back the Money!” meme that many leftist critics – notably the EFF leader Julius Malema – regularly use against Zuma. But arguing Zuma does not have to pay back any money, the police minister last Wednesday offered unintendedly hilarious excuses for unjustifiable state security funding on cattle and chicken facilities and a swimming pool (to fight potential fires).

A desperately defensive Pretoria government’s investment in the myth of 2010’s success is too great to allow its citizenry to pull the strings that unravel the corruption jersey. But it’s just as fragile a fabric as the wool chosen by Washington and the IFF panel to pull over society’s eyes. Those strings would quickly entangle the likes of Blatter, Warner, Blazer, Mbeki, Zuma, Ramaphosa, Manuel, Jordaan, Glasenberg, Lynch and a host of their banker buddies. Their challenge is to gracefully step out of the tangle; ours is to pull the strings tighter, tripping them up (after all, the first three have already fallen harder than anyone expected), and then knitting some entirely new socio-economic and sporting systems as rapidly and as robustly as possible.

[Patrick Bond directs the Centre for Civil Society in Durban: http://ccs.ukzn.ac.za.]