Warning: Corruption risks for Olympic sponsors
10 Aug 2016 9:09 am by Mark Dunn
Some of the world's biggest brands are official sponsors of the 2016 Olympics, including Coca Cola, Visa and Samsung. Companies view the Olympics as a chance to raise awareness of their brand and increase sales of their products. But negative media headlines about bribery and corruption at the Olympics can undermine these efforts. So brands should identify potential risks to supporting the Olympics, and also be clear about why they are supporting.
The large sums of money involving in staging an Olympic Games create strong incentives for bribery. This can take place during the bid process, during the awarding of contracts to build the stadia, and by companies using their access to the Games to bribe prospective clients.
- Bribery in the bid process:
To decide which country should host an Olympic Games has allegedly involved corruption at more than one Olympic Games. Several members of the International Olympic Committee were expelled for allegedly receiving bribes to award the 2002 Winter Olympics to Salt Lake City in the US. Authorities in France and Singapore are currently investigating suspicious payments of at least $2 million made to a secret bank account alleged to have helped Tokyo secure the 2020 Olympic Games bid. Tokyo's Olympic Committee admitted the payments but said they were legitimate, while Japan's prime minister has pledged to cooperate fully with the French investigators.
- Bribery in the awarding of contracts:
The 2016 Games have been hit by allegations of bribery in the awarding of tenders to build stadia and infrastructure in Rio. Reuters reports that Brazil's authorities are investigating corruption around the staging of the Olympics, including all the venues and services financed with federal funds. Documents from executives of Latin America's largest construction firm, Odebrecht SA, referenced $270,000 in suspected bribes connected to two major projects to secure the legacy of the Olympics in Rio. With the lucrative contracts on offer – the Rio 2016 organising committee has a budget of $1.9 billion euros for non-permanent structures – companies might be tempted to bend the rules to get some of this money.
- Bribery using access to Olympic events:
Companies could use their access to the event to influence prospective clients or politically exposed persons. BHP Billiton, the world's largest mining firm, paid $25 million to settle charges by US regulators over its provision of hospitality to government officials during the 2008 Olympics. While the law in many countries allows companies to offer hospitality in order to provide more information on their services, or to promote good relations between company and client, it is usually illegal to use hospitality as a bribe. So companies should be careful to ensure they stay within the acceptable bounds of hospitality at the Rio Olympics.
Forced labour and human trafficking
Staging major international competitions like the Olympics involves large-scale building works in a relatively short period of time. This carries the risk of human trafficking and forced labour during the construction of stadia and the production of branded merchandise.
The International Labour Organisation says that of the $150 billion profit made by forced economic exploitation around the world annually, nearly a quarter takes place in the construction, manufacturing, mining and utilities industries.
Residents in Rio claimed last monththat apartment blocks built by construction firm Cyrela to house journalists in Brazil were built using "labour in conditions analogous to slavery". Companies should be careful to monitor the media mentions and supply chains of Olympic contractors.
Team and athlete behaviour
Even corruption within Olympic teams can negatively affect the reputation of sponsors of the Games.
It was announced last week that 118 competitors from Russia's 389-strong team had been banned from competing in Rio, after allegations of a state-sponsored doping regime. These allegations and impeding suspicions of Russian athletes could hurt the reputation of Gazprom, sponsor of the Russian Olympic team. Gazprom funded some of the country's Olympic preparations "to invite the best coaches and high class experts" to train the Russian team. Although there is no indication that Gazprom knew about the alleged doping programme, this is not the publicity the company would have hoped for from the Games.
Corruption spotlight on Brazil
The Olympics come to Rio at a time when corruption is an often discussed topic in Brazil. President Dilma Rousseff has been suspended from office over allegations that she manipulated government accounts, which she denies. There are also allegations that oil firm Petrobras colluded with government officials to pay them for their help in securing building contracts.
However, the international focus brought by the Olympics could end up helping Brazil's reputation for fighting bribery and corruption. A report by Professor Andy Spalding and the University of Richmond Law School Anti-Corruption team says "these scandals are actually evidence of newly enacted corruption laws taking effect". The new Clean Company Act of 2014, aims to crack down on bribery in the awarding of contracts. Bid rigging and fraud are now prohibited in public procurement, as well as bribery of Brazilian public officials. The Olympics could be an opportunity to demonstrate the country's commitment to fighting bribery and corruption.
The logos and adverts of major international companies will be ubiquitous at the Olympic Games, and these firms will hope the association boosts their revenues and reputation. But as the prevalence of corruption allegations around the Olympics suggests, companies should be careful to carry out strict due diligence checks before supporting future sporting events.
We are watching the news around the games – the victors and the sponsors – and their return on a major investment. See our Olympics Media Tracker page with live charts updating every quarter hour to stay up to date!
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