FIFA’s freshly adopted TPO ban entered into
force on 1 May (see our Blog symposium). Though it is difficult to
anticipate to what extent FIFA will be able to enforce the ban, it is likely
that many of the third-party investors will try to have recourse to alternative
solutions to pursue their commercial involvement in the football transfer
market. One potential way to circumvent the FIFA ban is to use the proxy of
what has been coined “bridge transfers”. A bridge transfer occurs when a club
is used as an intermediary bridge in the transfer of a player from one club to
another. The fictitious passage through this club is used to circumscribe, for
example, the payment of training compensation or to whitewash a third-party
ownership by transforming it into a classical employment relationship. This is
a legal construction that has gained currency especially in South American
football, but not only. On 5 May 2015, in the Racing Club v. FIFA case, the Court of Arbitration for Sport (CAS)
rendered its first award involving directly a bridge transfer. As this practice
could become prevalent in the coming years we think that this case deserves a
close look.
I. Facts and procedure
Fernando Ortiz is an Argentine professional
football player who entered into an employment contract with Vélez Sarsfield,
valid until 30 June 2012. After the expiration of the contract, Ortiz signed an
employment contract with the Uruguayan team, Institución Atlética Sud América
on 11 July 2012, valid until 30 June 2017. Institución was playing in the
Second Division in Uruguay at that time. A week later, on 20 July 2012, Ortiz
was transferred from Institución back to Argentina. Institución and Racing
Club, Ortiz’ new club, agreed a transfer fee (which was not disclosed). The
first instalment should be made before 24 July 2012. Ortiz�� new employment
contract was valid until 30 June 2014. Both transfers were duly registered in
the FIFA Transfer Matching System (TMS). First, on 23 July 2012, the Argentine
Federation (AFA) provided the Uruguayan Federation (AUF) the International
Transfer Certificate (ITC). After the transfer from Institución to Racing, the
AUF sent the same paperwork to the AFA on 3 August 2012. At that time, no
payments were made.
Meanwhile, in view of the number of similar
transfers, AFA and the Argentine Tax Authorities agreed that the players concerned
would not be allowed to play in the Argentine league. This resulted in the
parties (Institución, Ortiz and Racing) concluding a Rescission Agreement of
the transfer contract, stating that they had “nothing to claim from each other”.[1]
This agreement was not uploaded at that time in the TMS. On 23 November 2012,
the FIFA TMS body sent a letter[2]
to Racing asserting that they were not aware of any proof of payment of the
transfer fee, and that this transfer could constitute an infringement of the
TMS rules. Racing replied[3]
by enclosing the rescission agreement and confirming that no payments were to
be made. On June 2013, FIFA TMS opened disciplinary proceedings against Racing,
claiming a violation of articles 3 and 9.1 of Annexe 3 RSTP[AD1] . In response Racing blamed Ortiz for
trying to benefit himself from such operation and argued that the club had a
true sporting interest in signing Ortiz and did not receive any economic
benefit out of the transfer. On 14 August 2013, the FIFA TMS body submitted the
disciplinary proceeding to the FIFA Disciplinary Committee (FIFA DC) for a
proper investigation of the facts.
In its decision of 5 March 2014, the FIFA DC
analysed the two transfers and concluded that they lacked a sporting objective.
Even if, from a formal point of view, the first of the two transfers did not
involve Racing directly, the FIFA DC considered, taking into account the
chronological unfolding of the transfers, that the transfer of Ortiz to
Institución would not make sense (according to the playing level of Institución
and Ortiz), if his subsequent transfer to another club, in this case Racing
Club, was not already planned. Accordingly, the FIFA DC found that the two
“parts of the operation” cannot be considered separate. Hence, the whole bridge
transfer scheme was deemed known to all parties involved. Thus, the FIFA DC
concluded that Racing was involved in the operations carried out and therefore
liable to face sanctions.[4]
Moreover, the FIFA DC drew attention to the
effects the rescission agreement should have had in a rational context. Indeed,
in a normal constellation, one would have expected Ortiz to return to
Institución, instead the fact that he stayed on to play at Racing corroborated
the non-sporting interest of the transfer. The FIFA DC considered that the aim
of the TMS rules is to create transparency (Article 1 Annexe 3 RSTP) in
players’ international transfers. In the view of the FIFA DC, Racing, however,
used the TMS fraudulently to give a sporting appearance to such a transfer. Therefore,
Racing is found to have infringed Articles 3(1)[5]
and 9.1(2)[6]
Annexe 3 FIFA RSTP, since the transfer was conducted through the TMS for
illegitimate purposes and it did not act in good faith. As a consequence of
this infringement, the Argentine club was fined CHF 15,000 and warned in
accordance with the FIFA Disciplinary Code.[7]
In the same proceedings, the Uruguayan club was sanctioned with a transfer ban for two
complete and consecutive transfer periods and a fine of CHF 40,000.
Racing Club decided to appeal the decision to
the CAS. The Argentine club based its appeal[8]
on the grounds that there is no legal basis in the FIFA Regulations to sanction
the club for correctly registering a transfer without a sporting reason in the
FIFA TMS system.
II. Commentary
First, we need to explicate in greater details
the functioning and purposes of bridge transfers. Before, tackling the
substance of the award rendered by the CAS.
A.
What is a bridge transfer?
As explained by Ariel Reck[9]
(who was Racing’s lawyer in the present case), a bridge transfer has three main characteristics:
A
bridge transfer is made for no apparent sporting reason, there is a
non-sporting purpose underlying the move.
Secondly,
there are three clubs involved in this triangular structure: on the one hand
the club where the player was firstly registered (club of origin); secondly,
the so-called ‘bridge club’, which
will usually be a club of a lower level than the player involved and the final club of destination, i.e. the club
where the player was intended to play for from the beginning. The lack of
balance between the player and the bridge club is usually evident.
The
last feature is the short period of time that the player is engaged with the
bridge club. Frequently, such a player does not play any game at all with this club.
There are three important reasons why football
clubs enter into a triangular agreement that constitutes a bridge transfer:
The bridge transfer helps to
reduce the cost of training compensation or payments to be made under FIFA’s
solidarity contribution mechanism.
The bridge transfer allows the
use of a club to circumvent the FIFA rule that prohibits TPO.[10]
The bridge transfer is used to
evade taxes.
1. Reducing training
compensation
As far as the reduction of the value of the training compensation is concerned, it
should be noted that there is already an award dealing with this matter, though
without making an explicit reference to the notion of “bridge transfer”. In
2009, CAS rendered an award in a dispute between MTK Budapest
and FC Internazionale. In this case, Inter was interested in signing a
Hungarian player from MTK Budapest. After negotiations between the two clubs
broke down, the player entered into a professional contract with a Maltese
club. Yet, after nine days at the Maltese club, the player was transferred to
Inter. According to the FIFA’s training compensation rules[11],
if the player would have been transferred directly from MTK Budapest to the
Italian club, the payable amount to the Hungarian team, for the three seasons
that the player was trained by MTK Budapest, would have been €160,000.[12]
The Panel, found this transfer to be irrational and considered that the
training efforts of MTK Budapest should in any case be rewarded. Therefore, it
decided that Inter should pay a training compensation to the Hungarian team.
On the other hand, by means of a comparable
manoeuvre, the solidarity mechanism
can also be manipulated. The RSTP provisions on the solidarity mechanism are only
applicable to international transfers (Article 1(1) RSTP). The transfers
between two clubs of the same association are “governed by specific regulations
issued by the association concerned” (Article 1(2) RSTP). Thus, one can reduce
the amount of the solidarity contribution via a bridge construction. The first (international)
transfer is concluded for a low amount, which would be subject to the
solidarity contribution. Later, a second (national) transfer is concluded for
the real amount.[13]
2. Circumventing the FIFA TPO ban
Another purpose for the use of bridge transfers
is to circumvent the FIFA rules prohibiting agents (or intermediaries) or other
third parties to acquire economic rights from players. This is “a way to anchor
a players economic rights to a club”[14]
instead of a mere third party (agent or a company). By controlling a club, the
former third-party owners are able to continue investing in players while
making sure that this investment is at least formally in conformity with the
RSTP. With this mechanism, a third party, who controls a club (a bridge club), also
enjoys the legal protection awarded by the FIFA RSTP to clubs, for example, in
case of breach of the contract without just cause (17 RSTP).
3. Reducing Taxes
Bridge transfers are also designed to reduce
taxes or hide the financial beneficiary of the amounts.[15]
Bridge clubs, in these cases, are based in “tax heavens”. Consequently, two
transfers need to be concluded: One from the team of origin to the bridge club,
and the other one from the bridge club to the club of destination. If the
bridge transfer is made with the sole purpose of reducing taxes, the fee for the
first transfer would be low because this transfer fee is highly taxed. The
second transfer would be concluded for a higher amount and the fee will be
taxed at a low rate.
Secondly, a bridge transfer could also be used
to disguise a compensation for a player (this mechanism is generally used by
free agents) or payments to third parties. Usually, players who move to a new
club as free agents tend to receive higher salaries than players who have been
transferred to another club while still on a contract with their old club. In
order to prevent the payment of high income taxes, a player and a bridge club
agree to share the transfer payment made by the club of destination. Thus, the
bridge club is rewarded for taking part in the bridge transfer; this reward is usually
limited to a small share of the total transfer sum.[16]
The third alternative is the configuration at
play in the Racing case. In Uruguay, clubs
are considered cultural institutions and according to the Article 69 ‘Constitución Nacional’ (National
Constitution), they are exempted from paying taxes, even on transfers of
players. The clubs take the legal form of either ‘Sports Association’ or ‘Sociedad Anónima Deportiva’ (Public limited sports company), the
latter being considered a cultural institution as well. A recent Uruguayan
judgment[17] extended
the tax exemption to the ‘Socidades Anónimas Deportivas’. However, since bridge
transfers have no sporting interest and are aimed at an economic profit derived
from reducing the tax burden, the Uruguayan court also held that bridge
transfers are not to be tax exempted.
B.
The Racing case: FIFA’s interpretative bridge too far
1.
The
argument of the parties
Racing Club argued in front of CAS that neither
Article 3(1), nor Article 9.1(2) of Annexe 3 FIFA RSTP could constitute a sufficient
legal basis to impose sanctions in case of a bridge transfer. Basically,
“neither the Regulations nor the TMS generates a new substantive law”.[18]
No provision states that transfers with a purely economic purpose violate any
FIFA provision, which “precludes any sanction based on such concept”.[19]
Racing Club also pleaded the ‘principle of estoppel’. As neither FIFA nor the
FIFA TMS have sanctioned bridge transfers in the past, Racing Club is of the
opinion that the FIFA DC is estopped from sanctioning them in the case at hand.
FIFA recognises that “although (the FIFA
regulations) are not applicable to the present matter, (they) present an
unambiguous view of what falls within the scope of the Regulations in general
terms”.[20]
The body argues that this loophole might be covered by the association’s usual
practice or, if not, by the rules that they would lay down if they were acting
as legislators. Also, FIFA argues that the FIFA Disciplinary Code (FDC) has to
be read in accordance with the language used, the grammar and syntax of the
provisions, the historical background and the regulatory context. In other
words, FIFA pleads that the Panel must sanction the club interpreting the FIFA
rules by analogy, if the wording of articles 76 FDC[21]
and 62 FIFA Statutes[22]
in connection with the TMS rules invoked is not sufficient to ground the
decision of the FIFA DC.
2.
The
decision of the Panel
In the view of the Panel, the FIFA DC was
competent to render a decision in this matter. However, this decision must be
grounded on a legal basis found in the FIFA regulations. The key question in
the present case is whether Articles 3(1) and 9.1(2) Annexe 3 FIFA RSTP can
constitute such a legal basis.
Therefore, taking into account that Racing was
sanctioned for having violated the provisions of Annexe 3 by having entered
untrue or false data and/or having misused the TMS for illegitimate purposes in
bad faith by concluding a “bridge transfer”, the Panel must decide whether the
transfer breached these provisions, and if it did so, whether the sanction is
proportionate according the TMS rules.
The Panel considers that it is “undisputed that the present case
involves a transfer structure which, […], is to be considered as a “bridge
transfer”.[23]
The Panel considers that Racing Club could not ignore that it was involved in a
bridge transfer and was not acting in good faith when arguing that the transfer
via Institución was conducted exclusively on the basis of a sporting interest. However,
this does not imply per se that
Racing acted in bad faith as far as the TMS registration of the Player’s
transfer from Institución to Racing is concerned.[24]
Indeed, FIFA had to satisfy its burden of proof and demonstrate to the
comfortable satisfaction of the Panel that Racing Club had entered untrue or
false data and/or misused the TMS for illegitimate purposes. In this regard,
the Panel finds that “insufficient
evidence is available to prove that the Appellant must be assumed not to have
acted in good faith in connection with Player’s transfer registration in the
TMS”, as “it has not been proven that the Appellant has registered misleading
or false information in the TMS”.[25]
If FIFA is to outlaw the recourse to bridge
transfers it must do so in an express fashion. In other words, “the parties
involved, in conformity with the
principle of legality, shall be provided with specific guidelines in order
to know how to act when international transfers of players take place”.[26]
Critically, “the lack of such clear and specific set of rules
does not justify, in the eyes of the Panel, the “secondary use” of the TMS
rules for these purposes”[27]. The principle of legality implies that a
sanction must be based on a previously existing legal rule. The CAS had
emphasized this principle at various instances in its earlier jurisprudence.[28]
Consequently, the Panel found that the “bridge interpretation” used by the FIFA
DC to sanction Racing for taking part in a transfer construct qualified as a
bridge transfer was going too far and could not be followed. In short, “the current TMS rules represent
neither an appropriate nor an effective tool for combating and/or sanctioning
bridge transfers”.[29] Hence, the arbitrators decided to
reduce the sanction imposed to a mere reprimand.
This is not to say that the Panel endorses the
recourse to bridge transfers. Instead, it clearly states that it “concurs entirely with the Respondent
(FIFA) that measures should be applied against bridge transfers when such
transfers are conducted for the purpose of engaging in unlawful practices, such
as tax evasion, or to circumvent the rules concerning, for instance, the
payment of training compensation or solidarity contributions, or to assure
third party's anonymity in relation to the relevant authorities”.[30]
Yet, the basic rule of law principle requiring
that FIFA must first devised clearly positivized rules on the basis of which it
can then adopt the required sanctions must be respected. This is a bold move by
the Panel in light of the bad reputation of bridge transfers. FIFA, as any
public or private authority, cannot free itself from the duty of acting in the
framework of the regulations it has adopted. The decision is an important
reminder of the limits faced by the discretionary power of International Sports
Governing Bodies when CAS Panels review their disciplinary decisions. These
Bodies do not have an absolute discretion to exercise the disciplinary power
that they derive from their statutes. This power is checked by reference to the
same legal principles restricting State power in a national context. Thus, it
is the duty of FIFA to make sure that it disposes of an appropriate legal basis
to act. Consequently, in the (near) future, instead of jumping an
interpretative bridge too far, it is advisable that FIFA adopts specific rules
to tackle the potential ethical and legal challenges posed by the surging use
of bridge transfers.
[6] “Sanctions may also be imposed on any association or
club found to have entered untrue or false data into the system or for having
misused TMS for illegitimate purposes.”
[21] “The FIFA Disciplinary Committee is
authorised to sanction any breach of FIFA regulations which does not come under
the jurisdiction of another body.”
[22] “1.The function of the Disciplinary
Committee shall be governed by the FIFA Disciplinary Code. The committee shall
pass decisions only when at least three members are present. In certain cases,
the chairman may rule alone. 2. The Disciplinary Committee may pronounce the
sanctions described in these Statutes and the FIFA Disciplinary Code on
Members, Clubs, Officials, Players, intermediaries and licensed match agents.
3. These provisions are subject to the disciplinary powers of the Congress and
Executive Committee with regard to the suspension and expulsion of Members. 4.
The Executive Committee shall issue the FIFA Disciplinary Code.”