FIFA/CONCACAF scandal hits Canadian banks, but Scotiabank may be key to change

Scotiabank Mexico CEO Enrique Zorrilla (2nd L), Scotiabank Chief Marketing Officer John Doig (3rd L), President of CONCACAF Jeffrey Webb (3rd R), Mexican Football Federation (FEMEXFUT) President Justino Compean (2nd R), and Aaron Davidson (R), president of the sponsorship rights agency Traffic Sports USA, gesture during a joint presentation between Scotiabank and the CONCACAF at the Stock Exchange in Mexico City in a December 9, 2014 file photo. REUTERS/File (Reuters)

The ongoing FIFA corruption scandal has several key connections to Canadian soccer figures, and it will undoubtedly have an impact on Canadian soccer, but an underexplored element of it is the involvement of Canadian banks. The most prominent connection is with the Bank of Nova Scotia (Scotiabank), which became the lead sponsor of CONCACAF (the North American and Caribbean confederation of FIFA, and the one at the centre of many of the allegations of bribes and kickbacks) in 2014, but as Reuters reported this week, divisions of the Canadian Imperial Bank of Commerce and the Royal Bank of Canada are also facing questions about their involvement in some of the transactions mentioned in the FIFA indictments, with a CIBC FirstCaribbean officer allegedly flying to New York to personally collect a cheque and take it to the Bahamas and RBC having business ties to a Caribbean firm listed in the indictments. Investigations of the past are one thing, but it's notable that Scotiabank is actively pushing for CONCACAF reform and threatening to withhold its sponsorship payments until reforms are made. Reuters' Euan Rocha and John Tilak reported this past week that the bank wants specfic reforms before it hands over another cheque: 

Bank of Nova Scotia has warned regional soccer body CONCACAF, which is deeply enmeshed in the FIFA bribery scandal, that it will withhold funds from a major sponsorship deal unless the confederation cleans up its act, according to a source familiar with the bank’s position.

“The bank is deeply concerned," said the source, speaking on condition of anonymity due to the sensitivity of the matter. "It does not want to be associated with scandals like this at all."

The source said a new management team at CONCACAF led by new President Alfredo Hawit Banegas has brought in top-tier restructuring advisors and legal counsel and was starting to take the "remediation measures" that the bank, which is widely known as Scotiabank, is demanding.

What power does Scotiabank have here? Well, their deal makes them the lead sponsor on several CONCACAF tournaments through 2018, including the former CONCACAF Champions League club competition, which is now called the Scotiabank Champions League. Scotiabank is also the official bank of the confederation, and perhaps most importantly, their sponsorship deal wasn't front-loaded, meaning much of the money from it hasn't yet been turned over to CONCACAF. As Rocha and Tilak note, that makes the bank's threat to withhold payments plausible, and they might even be on solid legal footing to do so given their contract:

The demands from Scotiabank include a roadmap for exactly how the soccer body will resolve the alleged corruption and the mechanisms it will install to clean up and prevent such problems in the future, a second source close to the matter said. The bank wants a guarantee that CONCACAF is putting safety mechanisms in place.

Scotiabank's contract has provisions that allow it to back out of the sponsorship deal, if CONCACAF fail to properly address the issue, both sources said.

In a statement, Scotiabank, which operates in 34 of the 41 countries that fall under CONCACAF's remit, said it is disturbed by the allegations and has "zero tolerance" for such actions by its partners.

...The sponsorship deal is not front-loaded and the bank releases funds to CONCACAF based on the near-term event schedule, the first source said. Scotiabank is paid up on events for the next two months but the bank can hold back future payments, the source added.

"The bank is absolutely expecting more finality around the remediation package before any more cheques will be cut," the source said.

It does seem that CONCACAF is getting the message. They made headlines earlier this week by hiring restructuring specialists Alvarez and Marsal, the big U.S.-based firm with a global presence that has led restructurings of such problematic companies as Lehman Brothers and Arthur Andersen. As AFP wrote this week, that move may lead to an extensive makeover:

CONCACAF hired Alvarez and Marsal to assess all operations, with Carlos Vincentelli, a managing director in the firm's Miami office, leading the outside team that will spent four to five weeks evaluating CONCACAF finances and operations and suggesting measures to improve its effectiveness.

"We are extremely pleased to welcome Carlos and looking forward to working with Alvarez and Marsal," acting CONCACAF general secretary Ted Howard said. "The Confederation will benefit from the broad perspective and experience that Carlos brings from outside the world of soccer.

"This will help ensure the Confederation operates at the highest level of organizational efficiency and accountability going forward."

The assessment panel will suggest improvements to financial reporting methods, spending and cash flow management, managing third party vendor relationships and organizational structure.

We'll see what comes out of this, but the involvement of Alvarez and Marsal is certainly interesting. Hiring a firm of that magnitude for a thorough evaluation certainly has a PR component, but it could also lead to extensive changes at CONCACAF. It also illustrates that this case isn't just about a few soccer officials, but rather a highly-complicated organizational web of wrongdoing, not dissimilar from what was seen in the Lehman Brothers and Arthur Andersen cases. The involvement of Canadian banks is notable on that front, too, and it's worth mentioning that the FIFA scandals are just the latest issue those banks are seeing from their Caribbean connections. The region still faces substantial corruption and money-laundering questions, some connected to soccer, but many outside of it.

The Caribbean is a region where Canadian banks have made strong pushes to expand their influence, though, and that's why Scotiabank became a sponsor of CONCACAF's tournaments. It's not about growing their presence in Canada, it's about growing their presence in the rest of North America and the Caribbean. That sponsorship arguably hasn't worked out well for them so far, as being so thoroughly mentioned alongside CONCACAF and FIFA during these scandals is far from a badge of honour. Even though no accusations of kickbacks or bribes in Scotiabank's sponsorship deal have emerged so far, this still isn't something they want to be associated with. However, that sponsorship deal (and the terms of its contract) gives them substantial financial leverage against CONCACAF, and it appears they're using it to try and push for significant reform. We'll see if that reform actually happens, but if it does, it may well be a Canadian bank that was crucial to cleaning up CONCACAF.