FIFA Scandal Will Test Banks' Anti-Money-Laundering Liability

Among the hundreds of instances of bribes and kickbacks allegedly paid through bank accounts by officials of FIFA, the international soccer organization, one stands out.

In 2011, an unnamed bank refused to accept a transfer of more $1.2 million that the former head of FIFA's North American confederation allegedly tried to divert from a Qatari bank into the accounts of his family members, according to U.S. prosecutors.

That refusal is the only instance in the 161-page indictment of a bank raising any objection to the more than $150 million in bribe money that, according to the Department of Justice, flowed through the U.S. financial system with barely any impediment for more than two decades.

Now, the banks involved are facing questions about whether more of them should have raised objections — whether they should have refused some of these transfers, or whether the payments should have triggered anti-money laundering controls. The indictment makes no mention of any suspicious activity reports filed by the banks.

None of the banks named in the indictment has been accused of any wrongdoing. The DOJ is looking into whether any of the banks knowingly conspired with the accused officials.

"Part of our investigation will look at the conduct of the financial institutions to see whether they were cognizant of the fact they were helping launder these bribe payments," said Kelly Currie, acting U.S. Attorney for the Eastern District of New York, at a news conference Wednesday. "It's too early to say if there is any problematic behavior, but it will be part of our investigation."

The indictment comes at a time when regulators have massively ramped up their expectations for banks' efforts to track and monitor suspicious transactions.

Beyond the possibility the banks conspired in the alleged FIFA bribery, there are also questions about whether the banks were, in effect, unwitting accomplices, by failing to detect suspicious activity or comply with anti-money-laundering or know-your-customer rules.

"There were some clear risks or potential risks for liability on the AML side, and the question is whether those risks were flagged," said H. David Kotz, managing director of the Berkeley Research Group.

"It could be a failure to conduct monitoring, but at first blush it looks like a pretty extreme case of corruption, and at the moment we don't have any evidence of the banks' knowing involvement in that," he said.

The scheme laid out in the indictment is a complex web of ties between FIFA officials and sports-marketing companies, involving bribes paid in exchange for media rights to soccer tournaments.

The payoffs were allegedly made through envelopes of cash, checks, and, especially, a massive number of bank transfers.

The indictment names 26 banks, which range from exclusive Swiss private banks and Caribbean-chartered offshore entities to major American lenders like Citigroup and JPMorgan Chase, and even one community bank: the $7.6 billion-asset United Community Bank in Blairsville, Ga., where one of the defendants allegedly transferred cash to pay a swimming-pool contractor.

Citigroup said it's cooperating with the Justice Department. JPMorgan declined to comment, and United Community did not immediately respond to requests for comment.

Banking lawyers see a few hints in the indictment that could help the banks involved breathe more easily. First, the federal investigation took more than three years, so any flagrant violations — knowing conspiracy, say — would likely have been addressed by now.

Second, several of the bribe payments were designed to evade money-laundering controls, the indictment said. These attempts at deception — combined with the fact that the transfers were for well-known entities that dealt with large sums of money — might offer banks a good excuse for not having flagged the transfers.

"According to the indictment, the alleged scheme was structured to avoid detection," said David Chenkin, a partner at Zeichner Ellman & Krause. "One way to avoid detection of illegitimate transactions is to make them appear similar to the normal and expected account activity of an entity."

The types of transactions the complaint describes run the gamut, from wires small enough to avoid triggering Bank Secrecy Act reporting rules to huge sums passing across borders through correspondent banks.

For the personal wire transfers, the question is whether the size and frequency of the transactions lined up with what banks knew about the customers. It may not have been unusual for these FIFA executives to make legitimate transfers of large sums, which would make the bribes harder to detect.

"FIFA, although there have been questions about corruption for years, is not viewed as a criminal organization, so permitting these transfers could be considered reasonable," said Ross Delston, an attorney and AML expert in Washington, D.C.

For the correspondent-banking transactions, regulatory expectations about oversight are relatively "modest," he said. Correspondent banks generally lump many individual transactions together when they transfer funds, making it harder to scrutinize each payment, lawyers said.

Correspondent banks are, however, required to do due diligence on the banks they do business with. The transfers to Swiss banks and to banks under a regulatory cloud as described in the indictment should have been a clear warning, according to Daniel Alter, the former general counsel for the New York State Department of Financial Services.

"There was enough external public information that should have put these banks on notice about the organizations involved in this scandal," he said.

For example, Traffic Sports, a marketing company whose owner pleaded guilty to bribery charges last year, had an account at Delta National Bank & Trust in Miami, through which it allegedly transferred millions in bribes using correspondent banks including HSBC and Wells Fargo. Delta had pleaded guilty in 2003 to failing to file a suspicious activity report. It would not discuss the FIFA indictment.

Dealing with banks that have had such legal issues should have been a warning on the scale of a "nuclear-fallout alarm" for the correspondent banks, Alter said.

Furthermore, he said, allegations of corruption and bribery have been swirling around FIFA for at least five years. These rumors should have put banks on guard, Alter said.