TORONTO/NEW YORK, June 30 (Reuters) - An eyebrow-raising disclosure in the U.S. indictment of FIFA officials is that a representative of a Caribbean bank made it easy for one allegedly illegal transaction to be done by flying to New York to personally collect a check and then returned to deposit it in an account in the Bahamas.
This unusual courier service, which reduced the electronic trail on a $250,000 payment to former FIFA official Chuck Blazer in May 2011, was provided by an unnamed officer of Barbados-based CIBC FirstCaribbean International Bank, the indictment shows. CIBC FirstCaribbean is a subsidiary of Canadian Imperial Bank of Commerce, Canada's fifth-largest bank.
That check, U.S. prosecutors allege, was part of a $10 million bribe paid in return for the votes of then FIFA vice president Jack Warner, Blazer and another FIFA official in support of South Africa being granted the rights to host the 2010 World Cup.
Blazer has pleaded guilty to a series of financial crimes, including money laundering, wire fraud and tax evasion, and is cooperating with authorities. Trinidad and Tobago-based Warner, who has been charged with bribery, wire fraud and money laundering offences, has consistently denied wrongdoing.
In a charging document, U.S. prosecutors say that Blazer transported payments in ways designed to conceal and disguise funds in breach of U.S. law. Blazer's lawyer did not respond to requests for comment.
The payment is among a series of transactions being reviewed by U.S. authorities to see whether any banks knowingly facilitated money laundering, or failed to give the transactions proper scrutiny as required by law.
Other Canadian banks with operations in the Caribbean are also facing questions related to the FIFA probe, which has led to the indictment of 9 current or former soccer officials and five executives in sports marketing or broadcasting.
As previously reported by Reuters, Bank of Nova Scotia is demanding regional soccer body CONCACAF clean up its act after several of CONCACAF's current and former officials were among those indicted. If that doesn't happen, the bank will withhold payments from a big sponsorship deal it only recently agreed with CONCACAF, according to a source familiar with the bank's position.
And Royal Bank of Canada has business ties with a Caribbean banking group whose accounts were used for allegedly illegal transactions identified in the indictment.
None of the banks have been accused of wrongdoing. Still, association with the scandal will exacerbate problems already faced by Canadian banks in the Caribbean. They have been grappling with souring loan portfolios as the region's island economies took a hit from plunging tourism spending following the global financial crisis.
Bankers and lawyers say the scandal underscores a high reputational risk of doing business in the region, and could provide another reason for the Canadians to look to exit at least some of these tropical islands.
Such a retreat could hurt already weak economies by making it more difficult for businesses to raise capital or for consumers to borrow at competitive rates. All of the Canadian banks declined to comment on their plans for the region, though some have already sold assets or pulled out of businesses.
The Caribbean is "a highly tourism-driven economy that hasn't really come back since 9/11. It's been a disappointment for the banks," said John Stephenson, president of Toronto-based Stephenson & Co Capital Management, which owns Canadian banking shares. "The FIFA scandal is just another reason to get out of there."
CIBC FirstCaribbean, which provides services in 17 markets across the Caribbean, said last week it has begun an internal review of the FIFA matter and it will "take all appropriate steps towards ensuring that our bank is never used for illicit purposes."
Canadian banks gained a reputation during the financial crisis for their probity and conservative lending - unlike their U.S. counterparts who got deeply mired in the subprime mortgage mess. That image has been taking a battering in the Caribbean, where CIBC, RBC and Bank of Nova Scotia accounted for more than 60 percent of regional banking assets as recently as 2013.
In 2014, CIBC took a C$543 million ($435 million) after-tax charge on its investment in CIBC FirstCaribbean because of impairment of the value of assets and loan losses.
CIBC is so disappointed with the region that it would be eager to sell CIBC FirstCaribbean if it could find a buyer, a person with knowledge of its strategy told Reuters. CIBC declined to comment.
RBC, Canada's largest bank, booked a C$100 million net loss on the sale of its Jamaica operation last year and a further C$32 million of charges for restructuring and benefit costs in the region.
And Bank of Nova Scotia, Canada's No.3 bank better known as Scotiabank, boosted its credit loss provisions in the fourth quarter of 2014 largely due to loan losses tied to its Caribbean hospitality portfolio.
One of Scotiabank's biggest credit issues in the region has been a $233 million syndicated loan the bank made to help assemble the land for the $3.5 billion Baha Mar mega resort and casino project in the Bahamas. The developer of the resort, which is still to open, filed for bankruptcy in the United States on Monday.
Scotiabank did not immediately return messages seeking an update on its status with the Bahamas project. It got a stake in the project through a debt-for-equity swap as part of a new financing arrangement with China's Export-Import Bank, which in 2010 rescued the project with $2.45 billion financing.
Scotiabank has been left "deeply disturbed" by the FIFA scandal, the source familiar with its position said, because of the multi-tournament, multi-year sponsorship deal it signed with CONCACAF, the regional soccer confederation for North and Central America and the Caribbean in December.
A number of individuals linked to CONCACAF have been indicted by U.S. prosecutors, including two former presidents - Jeffrey Webb and Jack Warner - as well as the head of a marketing rights company. Blazer is also a former CONCACAF general secretary.
In a statement, Scotiabank said it has "zero tolerance" for corrupt behavior by its partners.
Meanwhile, RBC's joint venture partner in the region, Bahamas-based Fidelity Bank & International Trust Ltd, is connected to allegedly illicit payments outlined in the U.S. indictment.
Accounts at Fidelity's Cayman Islands operation were used to funnel an alleged $1.5 million bribe from a sports marketing rights company in late 2012 so that then CONCACAF president Webb could pay for a new swimming pool and a new property in the U.S., prosecutors said.
Webb, who has also been charged with bribery, wire fraud and money laundering offences, had worked at Fidelity in the Caymans for 20 years and was business development manager in 2012 when he left to become CONCACAF president.
In response to questions from Reuters, RBC stressed that Fidelity Bank where Webb worked, and its Royal Fidelity joint venture, are separate operations.
Fidelity said Webb had no affiliation with Royal Fidelity or RBC while at Fidelity Bank. "Our relationship with RBC is still strong and was not impacted by the recent FIFA allegations," Fidelity spokesman Antonio Saunders said.
Webb's lawyer, Edward O'Callaghan, declined to comment.
So far, FINTRAC, the Canadian regulator that monitors money laundering, has not issued any warning to the Canadian banks over the FIFA case, said spokesman Darren Gibb. He declined to say if the agency would issue such a warning in the future.
This is not the first time Canadian banks have been scrutinized by regulators for their actions in the Caribbean.
In 2013, the U.S. Internal Revenue service sent CIBC FirstCaribbean a summons for information on some of the bank's customers who may have been evading U.S. income taxes. An IRS spokesman said it was not allowed to say whether it is still looking into accounts at the bank. Still, CIBC FirstCaribbean is on the IRS's list of 26 financial institutions where taxpayers receive a harsher penalty if they are found to have undisclosed accounts, compared to those who have hidden offshore accounts elsewhere.
RBC's business in the Bahamas has been ensnared in a money laundering and tax evasion case. The bank is currently facing charges in France of complicity in estate tax fraud, according to a regulatory filing the bank made in May. RBC has said that it does not believe it violated French law.
"The (FIFA) scandal is likely to be ascribed to rogue units rather than to inadequate controls or a wider issue at the Canadian parents. It does however point to the higher degree of reputational risk that our banks may have to deal with as they seek more overseas acquisitions," said Elvis Picardo, strategist and vice president of research at Global Securities in Vancouver. (Additional reporting by Douwe Miedema in Washington and Tim McLaughlin in Montauk; Editing by Soyoung Kim and Martin Howell)