A Three-Pronged Approach to the Paris 2024 Olympic Games

In this fourth edition of the weekly newsletter, we move away from the duty of care and human rights compliance and discuss practical ways to tackle corruption in the context of the upcoming Paris Olympic Games.

In a striking development, a series of police raids took place on June 20, 2023 on various entities involved in the organization of the 2024 Olympic and Paralympic Games in Paris. The police actions are part of two judicial investigations into suspicions of irregularities in public contracts. According to an article by Le Monde[1] , the premises of the Organizing Committee (Cojop) in Saint-Denis, the public establishment responsible for Olympic infrastructures (Solideo) in Paris, and the headquarters of several companies and consultants associated with the organization of the Games, were all subjects of police attention.

These investigations follow initial findings from the French Anticorruption Agency (AFA), which raised concerns about potential irregularities in certain public contracts awarded by Cojop and Solideo. The allegations under scrutiny include illegal taking of interests, favoritism, and concealment of favoritism.

The AFA, in early 2021, had already expressed its concerns over serious risks of "conflicts of interest" and "breaches of integrity" in the allocation of public contracts related to the organization of the 2024 Games. It highlighted the inadequate checks and balances in place and the risk of illegal interest taking when employees left for the private sector. In fact, the AFA has even published dedicated guidelines in view of the Olympic and Paralympic Games of Paris 2024[2] .

Further compounding these concerns, a separate investigation initiated in 2017 explores suspicions of illegal interest taking, misappropriation of public funds, favoritism, and concealment of favoritism related to a public contract awarded by Cojop to a specific company.

This context of suspected corruption and irregularities underlines the significance of the upcoming Paris 2024 Olympic Games, not only for sports organizations but also for sponsors and corporations. With the commencement of Olympic ticket sales in May 2023, it becomes paramount to understand the inherent corruption risks and to establish robust preventive measures. The high price of these tickets adds another layer to this narrative, suggesting the potential for misuse under the guise of gifts and invitations.

I. Sponsors of the Olympic Games: Ensuring Ethical Practices

The sphere of sports sponsorship in the Olympics has proven to be a significant area susceptible to corruption. This risk is far from being a mere theoretical possibility; it's a tangible threat that has manifested in the past and can even implicate the most senior individuals within an organization.

==> In theory:

While neither the DOJ’s and SEC’s Resource Guide[3] nor the AFA Guidelines tackle this topic directly[4] , we know that mainstream compliance guidelines emphasize the importance of:

1. Transparency in the sponsorship and bidding processes to deter underhanded agreements and bribes.
2. The establishment of robust whistleblowing mechanisms, providing a secure environment for individuals to report misconduct without fear of retaliation.
3. Strong accountability mechanisms, advocating for diligent investigations into corruption allegations and severe penalties for the perpetrators.
4. The creation of clear ethical guidelines for sponsorship that specify acceptable behavior and outline the consequences for infringements.
5. Regular auditing to ensure compliance with anti-corruption guidelines. Such audits can help detect and tackle unethical practices at an early stage.

?==> In practice:

Indeed, an essential component of combating corruption and fostering transparency in sports sponsorship deals is empowering and involving compliance officers at the earliest possible stages of any potential sponsorship. It might seem an obvious step, but compliance officers are often left in the dark until the last minute, pressed to approve what's heralded as "the deal of the century." This practice undermines the effectiveness of the compliance function and can inadvertently facilitate unethical transactions.

As we approach the Paris Olympics, which is actively seeking last-minute sponsorships to complete its budget, the risk of hurried, non-transparent deals escalates. High-level officials might be negotiating directly with representatives of your company, making the need for early compliance involvement even more critical. Thus, enhancing training and communication channels becomes an urgent requirement. Compliance teams need to be kept in the loop right from the start, apprised of all relevant information concerning potential sponsorships.

Once informed of a prospective sponsorship, the compliance officer must meticulously adhere to the organization's established procedures for such deals. A detailed analysis of the proposed sponsorship should be undertaken, which would include understanding:

1. The origins of the deal: who initiated the contact, the context, and circumstances leading to the proposal.
2. The benefits to the organization: How will the sponsorship align with the organization's business goals? How does it compare with past sponsorships in terms of added value?
3. The terms of the sponsorship: This encompasses the financial aspects, the proposed communication plan, and any other relevant details.
4. The extras: Any other benefits deriving from the sponsorship, such as complimentary Olympic tickets, need to be understood and evaluated. Questions about their intended use and distribution must be clarified to avoid misuse and potential ethical concerns.
5. The involved parties: Understanding who has been involved in the negotiations can reveal potential conflicts of interest and can help to assess the transparency of the process.

In conclusion, it is critical for compliance officers to be proactive, fully informed, and involved from the onset of any potential sponsorship deals. This proactive approach is the cornerstone of effective compliance and will go a long way in preventing corruption and maintaining the integrity of the sponsorship process.?Compliance officers must also be thorough and rigorous in their analysis, and document such analysis (and not just save a declaration form and questionnaire in a folder or emails chain).

==> In facts (in case you still need to convince your internal clients that risks are real…):

The 2021 Tokyo Olympics were marred by a significant bribery case that involved sponsorships, and implicated key figures within the event's organization. Haruyuki Takahashi, formerly a board member of the Tokyo Olympic Organizing Committee and an executive at Dentsu, Japan's largest advertising agency, was charged with accepting bribes amounting to about ￥198 million from Olympic sponsors.

On April 21, 2023, the Tokyo District Court passed its first ruling related to a series of corruption cases linked to the Tokyo Olympics. They found Hironori Aoki, the 84-year-old founder and former chairman of Aoki Holdings Inc., guilty of bribery and sentenced him to two and a half years in prison, suspended for four years. Alongside him, his brother, Takahisa Aoki, and former executive managing director, Katsuhisa Ueda, were also found guilty of transferring a total of ￥28 million ($209,100) to Takahashi's consulting firm, Commons Co., over thirty installments from 2019 to 2022.

The funds were used to secure advantageous arrangements for Aoki Holdings in Olympic sponsorship selection, accelerated approval for official licensed products, and a contract to provide the official uniforms for the Japanese national team.

This high-profile corruption case serves as a stark warning to compliance professionals globally. It shows that no one, regardless of their status within the company, is exempt from the risk or temptation of corruption. This revelation reinforces the need for comprehensive, proactive, and top-down anti-corruption measures throughout an organization, including rigorous oversight and regular audits.

II. Ticket Purchasers: Balancing Client Entertainment and Compliance

Lavish gifts and hospitality is a classic means for corrupting, and is a particularly relevant in the context of the Olympic games.

==> In theory:

Whether the tickets are being purchased for clients, partners, or even public sector individuals, recognizing these risks is the first step in countering potential corruption. It's crucial to understand scenarios where gifts or invitations could potentially be construed as corruption, especially when these offerings could influence business decisions or regulatory matters.

Here are the best practices recommended by the AFA in its guidelines in view of the Olympics regarding the handling of gifts, invitations, and other benefits:

1. Formalize Policies: Organizations should create a code of conduct detailing their policies on gifts, invitations, and other advantages. These policies should include rules about declaring gifts and invitations, establishing a monetary value threshold for acceptance, specifying extra vigilance for particularly exposed roles (e.g., those involved in purchasing or sponsorship), and prohibiting the receipt of gifts and invitations during certain periods (e.g., during contract bidding or renewal).
2. Education and Communication: These rules should be presented and explained to all employees and executive members. The policy on gifts can be discussed in informational meetings and each staff member should sign a copy of the document, which should evolve as different situations arise.
3. Policy Dissemination: This policy should also be disseminated to third parties. This practice allows employees to refuse gifts that are excessive in value, based on a policy that is known to the third parties.
4. Record Keeping: Organizations should maintain a register (physical or digital) to track gifts, invitations, and advantages, whether they are accepted or refused.
5. Regular Monitoring: Compliance with these policies should be regularly monitored, both by employees and executive members.
6. Seeking Advice: In case of uncertainty, advice should be sought from a compliance advisor.

==> In practice:

These guidelines are typical compliance advice regarding gifts and hospitality. That being said, with respect to the Olympics more precisely, because of the anticipated accrued scrutiny from the authorities around the world, it may be relevant to put in place dedicated compliance internal controls:

1. Transparency: Keep a clear record of all Olympic tickets purchased, gifted, or used for entertainment purposes. This record should specify the recipients, the reasons behind the offering, and the expected business outcome.
2. Accountability: Decisions on purchasing and distributing Olympic tickets should be made or approved by senior management following a review by the compliance department to avoid any conflict of interest.
3. Proportionality: The value of the tickets should be reasonable and in line with the industry norms. Exorbitant or lavish ticket offerings can be seen as bribes and can undermine the organization's integrity.
4. Purpose: The intent behind the gift or entertainment must be legitimate and business-related. If the purpose is to unduly influence a business decision, it could be construed as corruption.
5. Compliance with local laws: Ensure all practices align with both the home country's laws and the laws of the country where the recipient is located.
6. Public Sector: When dealing with the public sector, organizations must exercise extra caution. Many public officials are subject to strict rules regarding the acceptance of gifts and entertainment.

In practice, strict compliance does not necessitate the outright prohibition of all gifts or hospitality involving the Paris Olympics. It is crucial to remember that the underlying purpose of compliance is to prevent corruption, and corruption, under French law, necessitates the presence of an intent to offer, promise, grant, request, or accept a bribe or undue advantage, whether directly or indirectly, at any time. It's a crime that requires not just the act but also a corrupt intent.

However, this is not a call for compliance officers to act as uncompromising ayatollahs. Instead, the role of compliance is to guide and work alongside businesses, enabling them to navigate the rules while still engaging in legitimate, business-related gift-giving or hospitality. Compliance officers should aim to find practical, acceptable solutions that respect the spirit of the law and ethical guidelines without stifling business relationships or opportunities. This balanced approach allows for appropriate relationship-building activities within the scope of the Olympics, while still protecting organizations from potential corruption risks.

The focus is on being reasonable, proportionate, and transparent, ensuring any gifts or hospitality are given with a clear, legitimate business purpose, not as a covert means to gain an unfair advantage or influence. As such, compliance becomes a facilitator, helping businesses operate ethically and lawfully within the exciting, high-profile context of the Paris Olympics.

==> In facts (in case you still need to convince your internal clients that risks are real…):

A high-profile example of the corruption risks related to Olympic tickets and hospitality is the case of global resources company BHP Billiton during the 2008 Summer Olympic Games in Beijing[5] . The Securities and Exchange Commission (SEC) charged BHP Billiton with violating the Foreign Corrupt Practices Act (FCPA) for its handling of a global hospitality program connected to its sponsorship of the Olympic Games.

BHP Billiton invited 176 government officials and employees of state-owned enterprises to attend the Games, ultimately paying for 60 such guests and some accompanying spouses and others. These guests primarily hailed from Africa and Asia and enjoyed three- to four-day hospitality packages, including event tickets, luxury hotel accommodations, and sightseeing excursions, valued at $12,000 to $16,000 per package.

According to the SEC, BHP Billiton "footed the bill for foreign government officials to attend the Olympics while they were in a position to help the company with its business or regulatory endeavors." The company eventually agreed to pay a $25 million penalty to settle the SEC’s charges.

III. Companies in the Sports and Construction Industries: Navigating the Corruption Minefield

Undoubtedly, due to their significant monetary value, the primary avenue for corruption, particularly in terms of scale, stems from third-party contracts. These contracts may be involved in either the construction for the Olympics or its broader organization. In the context of large-scale events like the Olympic Games, companies across diverse sectors - spanning from construction and logistics to communication - frequently resort to outsourcing segments of their operations to third-party entities. However, this practice can inadvertently open the door to corruption risks if these third parties engage in unlawful acts such as bribery or other forms of corrupt behavior.

==> In theory:

Companies are traditionally expected to consider the following steps to mitigate third-party corruption risks:

1. Due Diligence: Companies should perform comprehensive background checks on all third parties before entering into any business relationship. This includes checking the third party's reputation, financial stability, and adherence to anti-corruption laws.
2. Contractual Protections: Contracts with third parties should include anti-corruption clauses that explicitly prohibit bribery and other corrupt practices. Contracts should also include the right to audit the third party’s activities and terminate the relationship if the third party engages in corruption.
3. Monitoring and Audit: Regular monitoring and audits can help detect any corrupt activities at an early stage. Companies should also have a reporting mechanism that allows employees and third parties to report suspected corruption without fear of retaliation.
4. Training: Providing anti-corruption training to third parties can help ensure that they understand the company's anti-corruption policy and legal requirements.

==> In practice:

???????????????In the context of the Olympics, the monitoring and auditing of third-party contracts is of utmost importance. To do this, organizations need to gain an in-depth understanding of the third parties they are involved with and the nature of their relationships with them. Again, the analysis should not just be having a questionnaire filled-in and exchanging a few emails. There need to be a thorough and documented analysis. This involves asking critical questions: Are we a supplier, client, or partner in this arrangement? What is the financial structure of the deal, and what are the payment installments? How was the deal initiated and who were the primary drivers behind it? What is the precise scope of the contract? Was there a competitive bid process?

Further, in outsourcing situations or in forming partnerships with third parties, the rationale behind these decisions should be well understood. This could involve speaking directly to the internal staff involved to grasp the justification for these arrangements, and documenting these conversations for future reference.

High-risk contracts warrant additional measures. In such instances, it may be beneficial to have a discussion with the third party's legal or compliance representative. This conversation can provide insight into the third party's own compliance infrastructure, their approach to the contract from a compliance standpoint, and their interpretation of the contract. If the circumstances permit, in-person meetings are recommended.

Remember, compliance analysis is not strictly about legalities—it also involves a keen understanding of business norms, ethical practices, and intuition. An informed gut feeling, backed by a solid understanding of the facts, often plays a significant role in such analysis. Thus, the importance of thorough monitoring and auditing cannot be overstated when dealing with third-party contracts in the context of an event as large and globally scrutinized as the Olympics.

Finally, if you are compliance officer at a non-French group, and your French subsidiary may be involved with the Paris Olympics, inquire about it and review independently the analysis done by your local team in France.

==> In facts (in case you still need to convince your internal clients that risks are real…):

The 2014 Sochi Winter Olympics represents one of the most expensive Games in history, with various reports estimating costs ranging from $6.07 billion as per President Putin's statement to about $42.2 billion according to the Anti-Corruption Foundation of Alexei Navalny. A large proportion of this expenditure was state-funded, raising concerns about the proper allocation and use of these funds.

One of the most significant issues highlighted in a Transparency International’s report[6] is the overstatement of construction costs. Multiple contractors allegedly attempted to misappropriate state funds by inflating construction costs. The exact sum of these overstatements is challenging to determine, but two particular instances led to criminal proceedings where state funds allocated for Olympic venues were overstated by more than 8 billion Russian roubles ($230 million).

Employment scandals also emerged. Six criminal proceedings were initiated against employees of Olympstroy, the state corporation responsible for the construction of Olympic Venues. These employees allegedly used false documents to secure their employment, calling into question the legitimacy of the hiring practices within the corporation.

Further scrutiny was applied to Olympstroy’s spending patterns. The average monthly wage for an Olympstroy employee in 2010 was 141,400 Russian roubles ($4,050), significantly higher than the average wage in the Moscow construction sector in 2011.

Transparency International's report also detailed allegations of misuse of company funds by the Open Joint-Stock Company Northern Caucasus Resorts (NCR), which was in charge of Sochi's development. Company money was reportedly spent on trips by Ahmed Bilalov, Chairman of the Board of Directors, and other top managers. Around 80 million Russian roubles ($2.3 million) were spent on Bilalov’s charter flights, and over 2 million Russian roubles ($57,000) were spent on his London hotel during the London Olympic Games. It was discovered that 96% of the company’s authorised capital had come from the federal budget, making this uncontrolled spending even more scandalous.

Contract violations also occurred, including advances received for further work without accounting for previously completed work. One such instance involved the FKU DSD Chernomorye and Tonnelny Otryad №44, receiving advances without proper accounting, totalling over 1 billion Russian roubles ($31 million).

In these examples, we see how mismanagement, lack of transparency, and corruption can manifest at various levels in large-scale projects like the Olympics. It highlights the importance of stringent controls, diligent monitoring, and comprehensive, enforceable anti-corruption policies.

Conclusion

In conclusion, the experience from previous Olympic events, including the recent Tokyo Olympics, brings to the fore the necessity for stringent anti-corruption mechanisms in all business dealings associated with the Games. A practical yet thorough approach that incorporates robust due diligence, transparency, and strict adherence to local and international laws, can help strike the right balance between maintaining business interests and ensuring ethical conduct. The underlying objective is not merely to avoid legal issues, but to uphold the values of integrity, respect, and fair play that the Olympics symbolize. As we approach the Paris Olympics, it's crucial to remember that embracing these principles in our business practices is equally as important as celebrating them in our sporting arenas.

[1] JO 2024?: des perquisitions au?Comité d’organisation pour des soup?ons d’irrégularité sur des marchés publics (lemonde.fr)

[2] Guide_AFA_sport_operateurs_2022.pdf (agence-francaise-anticorruption.gouv.fr)

[3] https://www.justice.gov/criminal-fraud/file/1292051/download

[4] The DOJ and SEC Guide analyzes charitable contributions, and while the AFA Guidelines for the Olympics has two explanatory sheets on sponsorship they refer to (i) the provision of equipment against provision of rooms, and (ii) rebate for the staff of an institution from a supplier.

[5] SEC.gov | SEC Charges BHP Billiton With Violating FCPA at Olympic Games

[6] Olympic-sized-corruption_6Feb2014.pdf (transparency.org)