Editor's note:
Gesa Kuebek holds an LLM and graduated from the University of Bologna, Gent and Hamburg as part of the Erasmus Mundus Master Programme in Law and Economics and now work as an intern for the Asser Instituut.
On Monday, 9 November,
the German Football Association (DFB) announced in a Press Release the
resignation of its head, Wolfgang Niersbach, over the 2006 World Cup
Affair. In his statement, Niersbach argued that he had “no
knowledge whatsoever” about any “payments flows” and is now being confronted
with proceedings in which he was “never involved”. However, he is now forced to
draw the “political consequences” from the situation. His resignation occurred
against the backdrop of last week’s raid of the DFB’s Frankfurt headquarters
and the private homes Niersbach, his predecessor Theo Zwanziger and
long-standing DFB general secretary Horst R. Schmidt. The public prosecutor’s
office investigates a particularly
severe act of tax evasion linked to awarding the 2006 World
Cup. The 2006 German “summer fairy-tale” came under pressure in mid-October
2015, after the German magazine “Der Spiegel”
shocked Fußballdeutschland by
claiming that it had seen concrete evidence proving that a €6.7 million loan,
designated by the FIFA for a “cultural programme”, ended up on the account of
Adidas CEO Robert-Louis Dreyfuß. The magazine further argued that the money was
in fact a secret loan that was paid back to Dreyfuß. Allegedly, the loan was
kept off the books intentionally in order to be used as bribes to win the 2006
World Cup bid. The public prosecutor now suspects the DFB of failing to
register the payment in tax returns. German FA officials admit that the DFB
made a “mistake” but deny all allegations of vote buying. However, the current
investigations show that the issues at stakes remain far from clear, leaving
many questions regarding the awarding of the 2006 World Cup unanswered.
The present blog
post aims to shed a light on the matter by synthetizing what we do know about
the 2006 World Cup Affair and by highlighting the legal grounds on which the
German authorities investigate the tax evasion.
What’s the 2006 World Cup Affair all about?
The scandal centres
on the payment of €6.7 million, which was, according to Der Spiegel, secretly
loaned to the DFB by the private investor Louis Dreyfuß, at the time CEO of
Adidas, prior to the Word Cup decision on 6 July 2000. Accordingly, the money
was never recorded in either the balance sheets of the Bid Committee or, later,
in the balance sheets of the German Organisation Committee of the World Cup. Der Spiegel argued
that the money was used to buy the four votes of the Asian representatives of
the 24-membered FIFA Executive Committee. The four Asians voted together with
the European representatives at the elections in July 2000 in favour of Germany
becoming the host of the 2006 World Cup. Due to the fact the New Zealand’s
representative Charles Dempsey surprisingly refrained from voting in the last
ballot, Germany won with 12:11 votes in favour. In a later article, Der Spiegel stated
that Zwanziger and Schmidt discussed in a recorded telephone conversation to
whom the Dreyfuß millions were transferred and mentioned the name of Mohamed
Bin Hammam in this context. It is worth remembering that the Qatari Bin Hammam,
a former member of the FIFA Executive Committee from 1996 to 2011, was charged
with offering bribes for votes and banned for life from all football activities
by FIFA on two occasions in 2011 and 2012. The DFB, however, denies all
allegations of vote-rigging.
The current investigations
of the public prosecutor focus on the supposed repayment of the €6.7 million loan
in April 2005. The Organisation Committee officially declared the money as the
German contribution to a “cultural programme” during the 2006 World Cup. As
such, the German money went to a FIFA account in Geneva, Switzerland. However,
the FIFA cultural programme never happened. Instead, FIFA allegedly transferred
the money immediately to an account of Louis Dreyfuß in Zurich. Up to now, there
are neither bills nor a receipt of payments at FIFA for the ominous €6.7
million. Furthermore, it remains unclear through which channels the DFB’s money
was transferred back to Louis Dreyfuß.
How does the DFB react?
Initially, the DFB
acknowledged in a Press Release of 16
October that evidence came to light “that a payment of the Organisation
Committee in April 2005 amounting to €6.7 million attributed to FIFA may not
have been used according to the indicated purpose”. On that same day, Der
Spiegel published its article. The
DFB promptly reacted in another Press Release,
denying the existence of slush funds. It refuted the allegations of Der Spiegel
as “completely untenable” and denied any accusations of vote-rigging. Niersbach added
that the DFB “will refute Der Spiegel’s claims and take legal action against
them”. In a similar manner, German football legend Franz Beckenbauer, who acted
as the head of the Head of the 2006 World Cup Organisation Committee, repudiated the
article’s claims publicly.
By contrast, on 23
October, Zwanziger described Niersbach, his well-known enemy and successor as
DFB president, as a liar in a Spiegel interview,
acknowledging for the first time the existence of slush-funds “during the
German World Cup application”. He argued that it is, “similarly clear that the
current DFB president has not just been aware of the matter for a few weeks, as
he states, but at least since 2005”.
Shortly
thereafter, Franz Beckenbauer admitted for the first time that “mistakes” had
been made, but still denied vote buying. According to the
DFB, the €6.7 million were indeed disguised under the false
pretences of the “cultural programme” and used to repay the loan to Louis
Dreyfuß. However, the DFB claims that the original payment to the German Organisation
Committee led by Franz Beckenbauer was made in 2002, thus after Germany had
already won the 2006 World Cup bid. According to the DFB, the money was used to
fulfil a particular demand of FIFA: FIFA president Blatter requested an
advanced payment of €6.7 million to guarantee a €170 million loan.[1]
Beckenbauer acknowledged that the Organisation Committee should not have agreed
to the proposal of the FIFA Finance Committee. Blatter, however, denies this
version.[2]
By this time, the
DFB had contracted the law firm ‘Freshfields Bruckhaus Deringer’ to investigate
the matter. On 27 October, the law firm stated that the proceedings will
probably take a long time.
Why is the German public prosecutor’s office investigating tax
evasion?
On 19 October,
the German Prosecutor’s office stated that they were in the process of verifying
an initial suspicion before launching a preliminary investigation. Possible
criminal wrongdoings involved deception, fraud and corruption. However, in a
later Press Release, the
public prosecutor’s office in Frankfurt stated that there would be no further
investigation into the alleged crimes due to the expiration of the limitation
period of proceedings. Instead, a preliminary investigation involving a
particularly severe case of tax fraud was initiated.
By indicating the
€6.7 million transfer as a contribution to the “FIFA cultural programme” on the
DFB’s tax return, the transaction was classified as an “operating expense”
under German tax law and was as such tax deductible. The public prosecutor’s
office, however, thinks that the payment had in fact a different purpose. As a result of this requalification, the payment cannot be
declared as a deducible operating expense anymore. Therefore, the suspects are
accused of declaring wrongful tax returns within the limit of their prior
responsibilities in the Organisations Committee, thereby evading corporate and commercial
taxes as well as solidarity surcharges[3]
for the year 2006 to a substantially high extent.
According to an article of the
“Süddeutsche Zeitung”, the falsified tax return were signed by
Niersbach himself. Niersbach denies “any involvement
whatsoever” in the affair.
What are the legal grounds under German Law?
The legal basis
for prosecution of tax evasion is the eighth chapter (§§ 369-412) of the
Abgabenordnung (Fiscal Code; abbr. AO). Here, tax offences are distinguished
into tax crimes (Steuerstraftaten)
and misdemeanours (Steuerordnungswidrigkeiten).
Whilst the former is characterised as a deliberate act, the latter offence is triggered
in case of gross negligence. Only tax crimes are punishable by penalties and
imprisonment.[4]
The core offence within the category of tax crimes is tax evasion (Steuerhinterziehung) which is regulated
under § 370 AO. A natural or legal person commits tax evasion by (i)
misrepresenting or concealing relevant information regarding taxation to tax
authorities; (ii) neglecting tax disclosure duties; or (iii) refraining from
the compulsory use of tax stamps (§ 370 AO Abs. 1). As stated above, the act of
tax evasion must be committed deliberately. In accordance with § 78
Strafgesetzbuch (Criminal Law Code; abbr. StGB), the statutory limitation
period for prosecution of tax crimes is five years. However, the limitation
period for tax repayment duties amounts to ten years; moreover, for tax
repayment duties 6% interest per year is added. The potential sentence for tax
evasion under German Law ranges from a financial penalty to a prison sentence of
up to five years. In particularly serious cases of tax evasion in conjunction
with abuse of an evader’s official authority or with fraudulent counterfeit the
possible sentence ranges from minimally six month to maximally ten years of
imprisonment (§ 370 AO Abs. 3 S. 1-5). If tax evasion is committed on a
professional basis or as part of an organized crime (Gewerbs-/ Bandenmaessige Steuerhinterziehung) as stipulated in § 370a
AO, the possible sentence ranges from one up to ten years of imprisonment.[5]
The search (Durchsuchungen) of private homes and
business premises are primarily regulated in §§ 102 ff. Strafprozessordnung
(Code of Criminal Procedure; abbr. StPO). Confiscation, or Beschlagnahmung, is regulated in §§ 98 ff. StPO. A search is conducted
during preliminary investigations, and has to be based on “sufficient factual
implications” (§ 152 Abs. 2 StPO). The preliminary investigation procedure can
have three possible outcomes: First, one can decide to close the proceedings
(§§386, 389 AO); second one can indorse a penalty order (Strafbefehl §§400; 407
StPO); and third, if enough evidence has been collected, the prosecutor can go
to court and charge the defendant for tax evasion (§170 StPO).[6]
Against whom does the German prosecutor investigates?
The prosecutor’s
investigation does not target the DFB as such. As stated in the introduction,
suspects are the recently resigned DFB president Wolfgang Niersbach, who was
the vice-president of the German Organisation Committee of the 2006 World Cup,
his predecessor Theo Zwanziger, who acted as the treasurer of the Organisations
Committee and Horst R. Schmidt, who was the managing Vice-President of the
Organisations Committee and until 2007 General Secretary of the DFB. If Niersbach
actually signed the falsified tax return papers, his role in the affair will most
likely be difficult to deny.
The exact role of
the other two officials in the putative tax evasion scheme remains unclear. Especially
the role of Zwanziger raises questions. Not only did he publicly reveal Niersbach’s
knowledge of the affair, he also gave evidence in front
of ‘Freshfields Bruckhaus Deringer’ on 28 October. Although contracted by the
DFB, the members of the law firm are supposed to act as external investigators.
Zwanziger stated that he had “submitted all his documents [and] presented his annotations
and assessments”. Six days later, the public prosecutor’s office initiated the preliminary
investigation on tax evasion and searched the aforementioned premises. At this
point in time, a linkage between Zwanziger’s testimony and the start of the
preliminary investigations remains purely speculative.
It is further
unclear why the investigators refrain from targeting Franz Beckenbauer, who
acted as the president of the Organisations Committee. The prosecutor argued that Beckenbauer
had “nothing to do” with the tax evasion. By contrast, the German journal “Handelsblatt” suggested
that “the most likely explanation” is that Beckenbauer lives in Austria and is thus
outside the jurisdictional reach of the investigators.
What potential charges are the accused facing?
As the topic of
the missing €6.7 million arose prior to any of the statements of the FIFA
officials and – as to my knowledge - no retroactive payments have been made,
the accused will not be exempted from charges under § 371 AO. If enough
evidence can be found and if the accused are proven guilty in front of a Court,
the accused six months to ten years imprisonment in case of a severe tax
evasion scheme (§ 370 AO Abs. 3).
Why does the combination of “tax evasion” “Germany” and “Louis
Dreyfuß” rings a bell?
It is not the
first time that Louis Dreyfuß has been involved in a “German football scandal”.
In 2000, Dreyfuß provided a loan to Bayern Munich’s Uli Hoeneß of 5 million
Deutschmark (around €2.56 million) as “play money” to speculate primarily on
shares and current exchange rates, which was deposited in a Zurich financial
institution. Subsequently, the bank reportedly granted Hoeneß a loan amounting
to 15 million marks, for which Louis Dreyfus also acted as guarantor. Hoeneß refrained
from declaring the proceeds of his gambling to the tax authorities. For this
and other tax evasion offences, Hoeneß was sentenced to a
total of three years and six month of imprisonment in 2014.
What’s next in the investigation on the 2006 World Cup Affair?
With regard to
the tax evasion charges, it is likely that the case will either be closed (§§ 386,
389 AO) or – if enough evidence is collected against one or all three of the
officials – the offenders will be charged for tax evasion in front of a court
(§170 StPO). The outcome will depend on the evidence that comes to light during
the preliminary investigation. As the FIFA “cultural programme” never took
place, it is very obvious that the money was indeed used for a different
purpose than indicated on the tax return and as such, the transaction should
not have been deducible as an operating expense. Hence, proving tax evasion will
most likely not be the public prosecutor’s office primary problem. Instead, the
investigators have to find evidence tying Niersbach, Zwanziger and/or Schmidt
to the crime. If the Sueddeutsche Zeitung is correct in stating that Niersbach
signed the illegal tax return, it will be difficult for him to avoid
prosecution.
In any case, it
is to be expected that the 2006 World Cup Affair will occupy Fußballdeutschland for a while. The results
of the investigation which the DFB confided to the law firm ‘Freshfields
Bruckhaus Deringer are not expected tomorrow. Moreover, the independence of the
investigation is questioned after a personal connection
between a Niersbach employee and a lawyer from the aforementioned
firm became public. FIFA, too, has several external lawyers investigating the claims.
In addition, the Sportausschuss (sport committee) of the German Bundestag
started to look into the matter. However, the impartiality of
the sport committee may also be questioned as one of the
Bundestag’s members also acts as the treasurer of the DFB and is tipped to
become the successor of Niersbach. As a result, the final word regarding the
use, whereabouts and purpose of the €6.7 million is not to be expected soon.