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.

[1] Frankfurter Allgemeine Zeitung:” Das Schweigen des Wolfgang Niersbach“, 04.11.2015, http://www.faz.net/aktuell/sport/fussball/dfb-praesident-wolfgang-niersbach-schweigt-nach-dfb-razzia-13893806.html

[2] Idem 1

[3] To finance the reunification of Germany a surcharge is levied from all taxpayers on their PAYE, income, withholding and corporation tax. The solidarity surcharge is currently 5.5 % of the relevant assessment basis.

[4] However, misdemeanours can be fined with up to €50 000

[5] See also L.P. Feld, A.J.Schmidt & F, Schneider: “Tax Evasion, Black Activities and Deterrence in Germany: An Institutional and Empirical Perspective”, Annual Congress of the International Institute of Public Finance, Warwick, 2007.

[6] See also Christoph Bräuning: „Durchsuchung und Beschlagnahme durch die Steuerfahndung“, ROSE & PARTNER LLP, 2012, http://www.rosepartner.de/fileadmin/redaktion/Durchsuchung_Steuerfahndung__Christoph_Braeunig_01.pdf

The book under review is the published version of a PhD thesis defended in 2013 by Andrew Vaitiekunas at Melbourne Law School. A PhD is often taking stock of legal developments rather than anticipating or triggering them. This was definitely not the case of this book. Its core subject of interest is the study of the independence of the Court of Arbitration for Sport (CAS) – an issue that has risen to prominence with the recent Pechstein ruling of January 2015 of the Oberlandesgericht München. It is difficult to be timelier indeed.

The fundamental question underlying Vaitiekunas’ research is: “does CAS have sufficient independence to be a law-maker?”.[1] Indeed, as many in the field, Vaitiekunas considers the CAS as a key institution in the production of a lex sportiva or transnational sports law. Hence, he thinks that “the closer CAS’s standards of independence and impartiality are to those that apply to the judiciary, the stronger may be the claim that CAS’s lex sportiva constitutes law”.[2] Although I am myself sympathetic to the idea of the existence of a lex sportiva, I would be cautious in attributing it mainly to the CAS. Instead, I think that the notion of lex sportiva is rather reflecting the complex legal interaction between the rules (and raw political power) of international Sports Governing Bodies (SGBs) and the CAS’s jurisprudence.[3] Yet, this should not detract from the value of posing the question of CAS independence as a hallmark of its legitimacy.

The book is relatively slow in tackling this question. The author is keen on providing a comprehensive analysis of the general context of his work in Chapter 2 on the CAS and the lex sportiva[4], of his theoretical apparatus in Chapter 3 on the relevant theories of law[5] and of his analytical frame to assess the independence of the CAS in Chapter 4 on independence and impartiality.[6] Although these parts are certainly useful to comprehend the red thread guiding his research, they certainly could have been synthetized and shortened. Any reader interested mainly in the assessment of the independence of the CAS might be tempted to jump directly to Chapter 5 and 6 providing the core of the author's analysis and his most valuable contribution to legal scholarship.

Chapter 5 reviews in detail the well-known favourable assessment by the Swiss Federal Tribunal of the independence of the CAS.[7] Yet, the most important and interesting aspect of the chapter is that it already engages in a critical assessment of this jurisprudence. When discussing the impact of the post-Gundel Paris reform agreement, Vaitiekunas concludes that “a number of facets of the reform indicate continuing links, albeit indirect between the Olympic governing bodies and CAS, thus undermining the perception that CAS is truly an independent arbitral body”.[8] He notes that “[w]hether ICAS members are appointed from within or outside the membership of the top sports bodies, they ultimately owe their appointment to these bodies”.[9] He criticizes the CAS arbitrator list as it “does not indicate who nominated the individual arbitrators, leaving an athlete at risk of choosing an arbitrator nominated by the very IF [International Federation] against which they are taking CAS proceedings”.[10] In any case, “the appointment [as CAS arbitrator] can be seen as occurring under the control of the Olympic governing bodies through their members or delegates in ICAS”.[11] Interestingly, this reasoning is analogue to the one used by the Oberlandesgericht München in its Pechstein ruling.[12] Unsurprisingly, Vaitiekunas is also extremely critical of the SFT’s judgment in the Lazutina case endorsing the independence and the legitimacy of the CAS post-Gundel.[13] He argues that the SFT “appears almost as an apologist for CAS”[14] and criticizes its “non-objective approach to statements by people close to CAS”.[15] Moreover, he denounces a “formalistic approach in assessing CAS’s independence from the IOC”.[16] Indeed, by privileging formal factors, such as the ICAS formal legal independence, “the SFT implicitly chose not to lift ICAS’s veil to consider who has the real powers behind ICAS”.[17] Importantly in light of the Pechstein case, he attacks the fact that “the SFT limited its analysis concerning CAS’s institutional independence solely to CAS’s independence from the IOC and did not consider CAS’s independence from the Olympic governing bodies collectively”.[18] Finally, he reiterates his critique against the closed list system, arguing that “the very process for the nomination and selection of arbitrators to the list creates an appearance of bias in favour of the Olympic governing bodies”.[19] 

Henceforth, Chapter 6[20] vows to pitch CAS’s independence against judicial independence standards discussed in Chapter 4. Coming from Chapter 5, the suspense as to the outcome of the assessment is relatively limited, it is clear ex ante that the author is doubtful of the independence of CAS. He assesses first the individual independence of the arbitrators, referring to four main criteria: 

"The four main recognised safeguards of a judge’s personal independence under judicial independence norms are security of tenure in a judge’s appointment, restrictions on the removability of a judge, adequate and secure remuneration for judicial service and immunity from legal action in the exercise of judicial functions."[21]

Furthermore, he contends that an arbitrator must fulfil a yardstick of substantive independence implying “a judge to be free from any inappropriate connections or influences".[22] In this regard, he argues “all CAS arbitrators […] owe their presence on the closed list to the Olympic governing bodies, thereby creating the appearance of a lack of independence from them”.[23] Finally, regarding the institutional independence of the CAS, Vaitiekunas suggests three main focal points: the structural links, the administrative links and the financial links. The structural links of the CAS are perceived as the main hindrances to CAS’s independence. This is because, “[g]iven the mutual ties and links which the IOC, the IFs and the NOCs […] have under the Olympic Charter, these bodies may appear to have influence collectively on ICAS”.[24] His conclusions is sans appel: “The potential influence that the Olympic governing bodies may be perceived to exercise over ICAS and the CAS secretary general is inconsistent with judicial independence norms which require judicial matters to be exclusively within the responsibility of the judiciary”.[25]

This highly sceptical view regarding the independence of CAS, leads him to propose a set of potential reforms.[26] His first recommendation is to implement “a restructuring of ICAS to ensure that it is institutionally independent”.[27] This would imply that “appointments to ICAS should exclude members of the IOC, executive members of the IFs, NFs and NOCs and their employees and anyone recently in these roles”.[28] Moreover, “the CAS code should be amended to prohibit the appointment of Olympic governing body associates or athlete associates as CAS arbitrators”.[29] Regarding the funding of ICAS and CAS, he suggests “the imposition of a levy on the broadcasting rights to or sponsorships of major sports events”.[30] In order to secure CAS arbitrators individual independence, he is in favour of appointing them “on a tenured basis to a specified retirement aged”.[31] He also recommends, “that arbitrators be appointed randomly to cases or on a predetermined basis”.[32] Eventually, he advises “to provide arbitrators with greater security in remuneration by appointing them on a fixed salary, like judges, payable regardless of whether and how many cases they are appointed to arbitrate”.[33] Vaitiekunas is convinced that if his recommendations were implemented, “CAS would be a true sports court, rather than an arbitral tribunal”.[34] 

The final chapter 7 of the book dedicated to CAS’s independence from external judicial review is a bit of a mystery to the reviewer. Vaitiekunas offers a relatively succinct but rigorous comparative study of the various national (and European) judicial avenues where CAS awards can be reviewed. He concludes rightly that CAS awards can be subjected to the control of national courts and European Institutions. However, his assumption that “CAS awards must be independent from review or intervention by state courts, such that they operate as final authority in the resolution of sports disputes”[35] and especially the consequence he derives from it, denying to lex sportiva any status as a legal order seems to be flawed.[36] Indeed, in no legal context, national or otherwise, is a judicial decision absolutely final. National courts’ judgments are often contested when their recognition is asked in another country, this does not entail that national law is not law. Similarly, the subjection of the judgments of the highest national courts of the EU Member States to the preliminary reference mechanism in place under EU law should not lead us to deny any legal value to national law. We are living in a pluralist legal age ruled by complex transnational legal assemblages and lex sportiva fits very well into this picture. Nonetheless, on this point I share the view of the author of this book, the question of the legitimacy of both the rulemaking bodies of lex sportiva (read FIFA or the IOC) and its adjudicative bodies (read the CAS) is of great importance. In fact, their illegitimacy, and here I differ from Vaitiekunas’ argument, should not mainly imply their non-existence as law-making bodies, but the need for a reform (or even a revolution) in the way they operate.

This book is precious, because it highlights very well the challenges ahead in our transnationalizing legal world. Democratizing international (or transnational in this case) judicial bodies is key, if the ideal and democratic function of an independent justice for world citizens is to be sustained.[37]  We need to understand that transnational private bodies are in the business of exercising a kind of public authority and should live up to analogous accountability and legitimacy standards than the one that have been progressively developed in the framework of the nation-states for national courts. The CAS is one of those, and the pending Pechstein case is a necessary itch to reflexively trigger a much-needed reform of its internal structure and functioning. Which precise form this reform will take is not crucial. What is essential, however, is that it ensures that CAS arbitrators be seen as rendering sporting justice at a personal (if not geographical) distance from those who are adopting and enforcing the rules of the lex sportiva. This book is an important critical contribution in that direction.

[1] Vaitiekunas A (2014) The Court of Arbitration for Sport: Law-Making and the Question of Independence. Stämpfli Verlag, Berne, p 2.

[2] Ibid, p 3.

[3] Duval A (2013) Lex Sportiva: A Playground for Transnational Law. European Law Journal 19: 822-842.

[4] Ibid, pp 7-50.

[5] Ibid, pp 51-83.

[6] Ibid, pp 85-120.

[7] Ibid, pp 121-177.

[8] Ibid, p 142.

[9] Ibid, p 146.

[10] Ibid, p 150.

[11] Ibid, p 151.

[12] See supra n 1, Oberlandesgericht (OLG) München [2015], paras 3b, bb, 3aaa and bbb.

[13] Supra n 2, Vaitiekunas, pp 168-174.

[14] Ibid, p 169.

[15] Ibid.

[16] Ibid, p 171.

[17] Ibid.

[18] Ibid.

[19] Ibid, p 174.

[20] Ibid, pp 179-200.

[21] Ibid, p 184.

[22] Ibid, p188.

[23] Ibid, p 189.

[24] Ibid, p 191.

[25] Ibid, p 193.

[26] Ibid, pp 197-199.

[27] Ibid, p 197.

[28] Ibid, p 198.

[29] Ibid.

[30] Ibid, p 199.

[31] Ibid.

[32] Ibid.

[33] Ibid.

[34] Ibid.

[35] Ibid, p 265.

[36] Ibid, p 269 : ”CAS’s lack of final authority, in particular where state public policy or EU law are in question, derogates from CAS’s lex sportiva being an independent legal order“.

[37] For a similar idea applied to international courts, see Von Bogdandy A, Venzke I (2014) In Whose Name? A Public Law Theory of International Adjudication. Oxford University Press, New York.