The US Department of Justice's ("DOJ") FIFA indictment may require certain banks to review any of their FIFA-related transactions, as well as test their compliance policies and procedures relating to compliance with know-your-customer and anti-money laundering laws. This client alert considers the legal responsibilities of banks in this context and outlines some proactive steps that banks can take.
Further to our previous update, a detailed review of the 161-page FIFAindictment, unsealed on May 27, 2015, names 26 banks whose facilities were used to perpetrate the scheme. Though there is no suggestion that the banks are at fault, the indictment alleges that illegal payments may have been made through the banks or that illegal payments may have been kept at accounts held by the defendants with the banks.
The indictment also notes a handful of occasions where a bank refused to process a payment or transaction because of the suspicious nature of the transaction.
Issues For Banks
Banks have obligations under U.S. Federal and state laws to maintain suitable systems to ensure their compliance with, among other things, laws that target money laundering by persons or entities engaged in criminal behaviour. The Bank Secrecy Act, in particular, requires banks to file reports for transactions of more than $10,000 and to file suspicious activity reports if they identify transactions which involve a possible violation of a law or regulation.
While it should be argued that banks could be excused for not considering soccer federations and their officials to be high risk customers, worthy of heightened transaction scrutiny, such position could be disputed by an overzealous regulator. Public allegations of corruption at FIFA have been widespread for years. Indeed, the public resignation of Michael Garcia – a former U.S. Attorney commissioned to investigate allegations of corruption in the selection of Russia and Qatar as the hosts of the 2018 and 2022 World Cups – over the manner in which his report was handled by FIFA, certainly should have raised red flags concerning possible corruption at FIFA.
Likely Regulatory Scrutiny
Again, while the banks are not being specifically targeted as part of the DOJ investigation, it is likely that the DOJ and other banking regulators will take an interest in banks' compliance procedures and how they dealt with the allegedly illicit payments. Indeed, at the DOJ press conference announcing the indictment, Acting United States Attorney Kelly Currie stated: "Part of [the DOJ's] investigation will look at the conduct of the financial institutions to see whether they were cognizant of the fact that they were helping launder these bribe payments."
Banks may face requests for information and be required to explain how certain transactions were flagged by their systems, or why a lack of any flagging did not involve a breach of the bank's regulatory responsibilities. At a minimum, banks and their employees will be potential witnesses in the criminal case and ongoing investigation.
Other interested regulators could include the Financial Crimes Enforcement Network (part of the Treasury Department), the Securities and Exchange Commission, the Federal Reserve and the New York Department of Financial Services, which, under the departing Superintendent Benjamin Lawsky, has a track record of investigating anti-money laundering issues.
Banks that have had dealings with FIFA or any of the entities referenced in the indictment (by name or otherwise) should immediately analyze the issues identified in the indictment, and undertake an investigation into whether there are additional transactions and accounts which may have involved potentially illegal activities.
Banks (whether named or not) should also review their anti-money laundering and compliance programs to ensure that they appropriately identify suspicious transactions and pick up red flags (e.g. transactions structured to avoid the $10,000 reporting requirement set out in the Bank Secrecy Act).
Banks will be expected to be able to robustly defend their compliance programs as they relate to anti-money laundering to their regulator. A failure to do so effectively could lead to additional questioning, costly remediation or, in some cases, enforcement action.