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U.S. Authorities Probe Banks' Handling of FIFA Funds

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07/23/2015 | 02:35pm EST

U.S. authorities have ramped up investigations into whether banks should have raised alarms about money flows linked to alleged corruption at soccer's governing body, according to people familiar with the matter.

In separate probes, prosecutors in the Brooklyn U.S. Attorney's office and New York's top financial regulator have contacted more than a half dozen banks combined in connection with the soccer scandal in recent weeks, the people said.

The previously undisclosed scrutiny represents a new prong of the corruption case, which has roiled the International Federation of Association Football, known as FIFA. The probes also create the potential for new headaches for the financial industry over its money-laundering controls, which are increasingly under the regulatory microscope.

Prosecutors have questioned HSBC Holdings PLC, Standard Chartered PLC and Delta National Bank and Trust Company, according to the people. At least three other major international banks have been contacted in the probe, the people said. Those banks couldn't be identified and it isn't clear if the separate probes by the U.S. Attorney's office and the New York regulator are looking at identical groups of banks.

Brooklyn prosecutors rattled the soccer world in May when they unsealed a voluminous indictment alleging that senior FIFA officials got more than $150 million in bribes and kickbacks as part of a sprawling scheme that functioned like a criminal enterprise. The 161-page indictment charged 14 individuals, including top officials and executives of soccer confederations as well as sports marketing firms.

One top American official, Charles "Chuck" Blazer, has admitted that he and other executive committee members accepted bribes to vote for South Africa's 2010 World Cup bid.

The indictment described how conspirators allegedly used numbered bank accounts in tax havens, bulk cash smuggling, safe-deposit boxes, intermediaries and currency dealers to conceal millions in illegal payments.

Authorities are now focused on whether the banks' anti-money laundering systems, required by law, should have raised red flags about some of that activity, the people said. They have also told the banks to scour their books for any illegal payments related to FIFA, they said.

The Brooklyn investigation is being headed by the U.S. Attorney's business and securities fraud section, which handles all white-collar investigations for the office and is a separate unit from the team heading the broader FIFA probe. The decision to move the bank probe to the white-collar team and commit additional resources to it is an indication that the banks may themselves become targets, according to the people familiar with the matter.

The New York State Department of Financial Services, meanwhile, has sent initial inquiries to more than six banks as part of its probe, one of the people said, including Standard Chartered, Barclays PLC, Deutsche Bank AG, Credit Suisse Group AG, and Bank Hapoalim, Israel's largest bank. The regulator, which gained a reputation for being aggressive with banks under recently departed head Benjamin Lawsky, is also looking into whether individuals at the banks had a role in any potential controls lapses, the people said.

The probes are at an early stage, the people said, and investigators could determine the banks under scrutiny aren't at fault.

An HSBC spokesman said "we are continuing to review the allegations in the indictments against certain FIFA executives and others, to ensure that our services aren't being misused for financial crime." Representatives for Standard Chartered, Barclays, Deutsche Bank, Credit Suisse and Delta Bank declined to comment. Representatives for the other banks didn't immediately return requests for comment.

Federal law requires banks to maintain systems that combat money laundering by monitoring transactions and reporting suspicious activity to the government. U.S. authorities have turned their attention to enforcing these laws more vigorously in recent years, which has led to major fines for banks with inadequate controls.

In January 2014, J.P. Morgan Chase & Co. agreed to pay $1.7 billion and admitted that it failed to file a money-laundering-related report to the government on Ponzi schemer Bernard Madoff's accounts.

Both HSBC and Standard Chartered are currently under legal agreements with the U.S. government that raise the stakes for the banks if they were to get in trouble with authorities again.

Those two banks agreed to enter into the so-called deferred prosecution agreements as a part of settlements over anti-money laundering or sanctions lapses in recent years. The agreements delay criminal charges for a period of time in which the banks have to improve controls. After that period, prosecutors usually drop the charges.

The May indictment mentioned more than 20 banks used by FIFA officials to transfer and receive bribe payments, including European banks HSBC, Standard Chartered, Barclays and U.S. financial institutions J.P. Morgan Chase, Citigroup Inc. and Bank of America Corp.

A number of the payments under scrutiny flowed through the Miami branch of small Delta Bank. Delta specializes in private banking and has affiliates in Geneva, Grand Cayman and Paraguay, according to its website.

Prosecutors didn't allege any wrongdoing by financial institutions at that time.

During a news conference announcing the indictment, acting U.S. Attorney Kelly Currie said his office was looking into whether or not the banks knew the illegal funds were passing through their accounts.

"It's too early to say whether this is any problematic behavior, but it will be part of our investigation," Mr. Currie said at the time.

The FIFA investigation is being led by prosecutor Evan Norris, who heads the office's national security and cybercrime section, and an organized crime squad in the New York field office of the FBI. That probe, which is ongoing, grew out of an organized crime investigation involving Russia, which Mr. Norris worked on before heading to the national security unit, according to people familiar with the matter.

The business and securities fraud section that is handling the bank probe is headed by prosecutor Winston Paes.

So far, of the 14 people charged in the indictment seven were arrested in dawn raids in Zurich the day the case was unsealed. One of those arrested, Jeffrey Webb, recently agreed to be extradited and appeared last week in federal court.

Write to Christopher M. Matthews at christopher.matthews@wsj.com and Rachel Louise Ensign at rachel.ensign@wsj.com

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Stocks mentioned in the article
ChangeLast1st jan.
EURO / ISRAELI NEW SHEKEL (EUR/ILS) -0.12% 3.8352 End-of-day quote.-6.28%
HSBC HOLDINGS PLC 1.74% 561.9 Delayed Quote.-14.62%
ONE STOP SYSTEMS, INC. -1.12% 1.76 Delayed Quote.-8.25%
STANDARD CHARTERED 0.63% 675.8 Delayed Quote.10.22%
STANDARD CHARTERED PLC 0.43% 57.75 End-of-day quote.19.79%
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