Recruiting U.S. Banks Against FIFA Bribery
One popular reaction to the U.S. case against FIFA is: Why should the U.S. justice system prosecute Brazilian companies for bribing Venezuelans in Argentina? 1 Isn't that sort of imperialistic? John Hempton is rattled, Noah Feldman is skeptical, Vladimir Putin is angry, Elie Mystal is pleased, the Men in Blazers are thrilled, and Amanda Taub points out that there are more U.S. connections than you might expect. On Twitter John Carney asked how busting FIFA corruption helps American citizens, and my flip but I think accurate answer was that the fines in this case will save American citizens tens or hundreds of millions of dollars in taxes by taking money from corrupt foreigners and giving it to our Treasury. Any economist will tell you that the optimal tax is one on foreigners living abroad, and a tax on unpleasant foreigners living abroad is even better.
But there's something else going on here. It's not just the U.S. justice system that is being pressed into the odd job of regulating international soccer ethics. It's also the U.S. financial system. So far only alleged principals in corruption have been charged, but the writing is very much on the wall for the banks that moved money for them. I wrote this morning about the inevitable dénouement for those banks: They will be charged with aiding and abetting money laundering, they will plead guilty and pay big fines, prosecutors will make bad puns in carefully stage-managed press conferences, and everyone will shake their heads about how the banks just can't stop themselves from committing crimes. People will write angrily that the banks that moved money for FIFA have the blood of Qatari workers on their hands, much as they did when HSBC and BNP Paribas confessed to providing banking services to drug traffickers and the Sudanese government, respectively.
"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," Kelly T. Currie, acting U.S. Attorney for the Eastern District of New York, said at a news conference.
Eric Lewis, a partner at Washington-based law firm Lewis Baach PLLC, said that the high profile of FIFA, and the protracted timespan over which the alleged bribery scheme took place should have raised red flags for the banks.
"The officials at FIFA are likely to be what are termed politically exposed persons, and at least at some point should have been on the radar screen of the banks," said Lewis, an expert in money laundering and racketeering cases.
Why go after the banks? Partly because they are where the money is, and the FIFA investigation looks likely to be quite profitable for the Justice Department. 2 Partly because everyone hates banks, and for an American prosecutor the public-relations benefit of bringing down (1) soccer, (2) corrupt foreigners and (3) banks all in one investigation is irresistible.
But those are dumb cynical answers, and there is a real legal answer, which is that U.S. law deputizes banks to prevent certain kinds of financial misconduct:
Banks are required to make checks to ensure clients aren't using their accounts for criminal activities. They are responsible for knowing their customers and having an idea of the source of their funds and the legitimacy of their activities.
And banks are rational economic creatures, so fining them for failing to prevent bribery will create incentives for them to prevent bribery next time. Even if my predictions are wrong, and no banks are ever fined for facilitating FIFA fraud, the Justice Department's ominous rumblings that it will "look at the conduct of the financial institutions" will encourage those institutions to improve their bribery-detection systems.
If you want to prevent bribery, this is an efficient system. It gives prosecutors leverage. The dollar is the main international currency, and dollars by their nature travel through the U.S. financial system, so if U.S. prosecutors want to they can probably find a way to make any bribery anywhere in the world into a violation of U.S. law. But just because something is a U.S. crime doesn't mean U.S. prosecutors can stop it. If a Belgian bribes a Frenchman in Luxembourg, it's tough for a U.S. prosecutor to drag either of them to court in Brooklyn, even if the money moves through a U.S. bank. So the U.S. criminal statute is not much of a deterrent to the Belgian or the Frenchman.
But the Belgian and the Frenchman need a bank to move their bribes for them, and the prosecutor can drag the bank to court in Brooklyn, which means that the U.S. criminal statute is an effective deterrent for the bank. This is true even if the bank is French, as BNP Paribas knows well: Because all major international banks need access to the U.S. financial system, they are all subject to U.S. jurisdiction, even for things that they do abroad. 3 So if U.S. law says that it's a crime for anyone to bribe anyone anywhere in the world, then international banks will refuse to process bribes anywhere in the world, and without banks those bribes just won't get made. Or that is, loosely, the theory. 4
So if the U.S. wants to crack down on bribery anywhere in the world -- or on specific kinds of bribery, like soccer bribery for some reason -- it can use the banks to do that. Prosecutors and the FBI don't have to investigate and prevent bribery themselves; they can require the banks to investigate and prevent bribery. They can leave it up to the banks to figure out how to detect bribery -- which seems like a hard problem to me? -- and punish them if any bribes get through. 5
Notice that this job is specific to the banks. One way that FIFA defendants allegedly paid each other bribes was this:
At one point, WARNER also directed Co-Conspirator #14 to fly to Paris, France and accept a briefcase containing bundles of U.S. currency in $10,000 stacks in a hotel room from Co-Conspirator #15, a high-ranking South African bid committee official. Hours after arriving in Paris, Co-Conspirator #14 boarded a return flight and carried the briefcase back to Trinidad and Tobago, where Co-Conspirator #14 provided it to WARNER.
The airline that flew Co-Conspirator #14 from Paris to Trinidad and Tobago was (allegedly) facilitating a money transfer for the purposes of bribery, much like the banks (probably) were. The airline, it is safe to say, will not be charged with money laundering. The hotels where FIFA executives (apparently) met to bribe each other will not be charged as co-conspirators. Banks are different. Banks are part of the regulatory system, instruments of U.S. government policy in a way that normal private businesses are not.
This occasionally creates problems. Banks aren't actually regulators, and their implementation of regulators' demands aren't always perfect. Not only in the obvious sense that profit-seeking banks often don't do enough to prevent crimes by their customers: Sometimes they do too much. Here's a fun 2010 Wall Street Journal story about U.S. banks getting out of the business of providing banking services for foreign embassies, because U.S. anti-corruption rules made it so risky for banks to accept deposits from foreign diplomats. This was not the government's intended outcome, and the State Department was "fully engaged in the issue, seeking a solution to what it sees as a problem that could have implications for U.S. diplomacy and security." And last year the Treasury Department had to issue a statement encouraging banks not to cut off ties with check-cashing and money-transfer firms, because anti-money-laundering rules made it so risky for banks to provide services to those firms that a lot of banks just gave up. Calibrating the right level of deterrence is hard.
More systemically, Felix Salmon has argued that the U.S. government's use of the financial system as a weapon of foreign policy undermines international financial cooperation. And there is a related worry that, as I've put it, "the more useful the dollar is as an instrument of U.S. foreign policy, the less useful it is as a currency for global transactions": For targets of U.S. government scrutiny, the euro or yuan or Swiss franc might be an appealing alternative currency, and if there are enough such targets then that could undermine the dollar's hegemony in international trade. So far that does not seem like a particularly imminent worry.
But mostly it's just a weird role for the banks to play. International banks -- both U.S.-based and foreign -- are in important ways the first line of defense for enforcing U.S. ethical rules throughout the world, even though American public opinion is pretty sure that the banks are the worst at following those ethical rules. We hate them, but our laws make them ambassadors of our values.
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Those nationalities are based on paragraph 119 of the criminal complaint, in which "the founder and owner of the Traffic Group, a multinational sports marketing company based in São Paulo, Brazil" (see paragraph 45), is alleged to have bribed Rafael Esquivel, a Venezuelan national, at a meeting in Buenos Aires.
What is the right model for prosecutors' incentives? This case has brought in, by my count, $28 million of cash and another $126 million of IOUs from the people who've already pled guilty. Presumably there will be a lot more if there are convictions, forfeiture orders, etc. The FBI director thanked "the investigators and prosecutors around the world who have pursued this case so diligently, for so many years," so I guess there have been expenses, but I think it is safe to say that the investigation will be profitable for the U.S.
Do prosecutors and FBI agents care about that? Are they revenue-maximizing? Should they be? Should they pursue high-revenue investigations over low-revenue ones? Should they pursue revenue from foreigners over revenue from Americans?
I mean, not for things that they do entirely abroad, but since dollars that move from a Belgian to a Frenchman in Luxembourg theoretically go through New York, practically speaking any provision of international banking services is going to touch the U.S. That's true even if no one involved ever physically goes to the U.S.
It is not quite literally a U.S. crime for anyone to bribe anyone anywhere in the world, though it is a crime for a U.S. person to bribe any foreign official anywhere in the world. But it's pretty close. The FIFA allegations are mostly about "wire fraud"; for instance:
On or about the dates set forth below, within the Southern District of New York, the defendant NICOLÁS LEOZ, together with others, did knowingly and intentionally devise a scheme and artifice to defraud FIFA and CONMEBOL and their constituent organizations, including to deprive FIFA and CONMEBOL and their constituent organizations of their respective rights to honest and faithful services through bribes and kickbacks, and to obtain money and property by means of materially false and fraudulent pretenses, representations, and promises.
That "within the Southern District of New York" doesn't mean they were in New York. It just means that they wired money from Miami "to a Banco do Brasil correspondent account in New York, New York, for credit to an account in the name of CONMEBOL at Banco do Brasil in Asunción, Paraguay." So wiring a bribe to a Paraguayan account in a Brazilian bank is a crime in New York if the bribe is in dollars, because dollars sort of necessarily touch New York on their way to Paraguay or anywhere else.
I mean, realistically, there's a due diligence defense: You only punish the banks if bribes get through that the banks should have caught. Red flags, etc. But that still prevents a lot of bribes.
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