Scotiabank sideswiped by FIFA corruption scandal

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When Bank of Nova Scotia signed a deal last year to become the official bank of the Confederation of North, Central America and Caribbean Association Football, it came amid what was supposed to be a new era at CONCACAF, a division of soccer's global governing body FIFA.

FIFA had been under intense media scrutiny at the time over allegations of corruption and a few months before the Scotiabank announcement, CONCACAF unveiled a code of conduct that banned bribery. The Scotiabank agreement "exemplifies the growing value of CONCACAF's properties and demonstrates the trust and confidence in our confederation," CONCACAF president Jeffrey Webb said.

But now CONCACAF is at the centre of a growing storm of controversy at FIFA, with allegations swirling about kickbacks and bribes totalling more than $150-million (U.S.).

Mr. Webb is among 14 people connected to Miami Beach-based CONCACAF under indictment in a New York court facing charges of fraud, racketeering and money-laundering. Documents filed in court portray decades of illicit payments, fake invoices, secret bank accounts and bogus consultants. The bribing became so extensive, court filings allege, that, in 2013, officials pocketed $110-million in bribes from four contracts totalling $353-million.

"The damage inflicted by the defendants and their co-conspirators was far-reaching," says the 47-count indictment, which runs more than 160 pages.

None of the charges have been proved in court.

Mr. Webb, who is from the Cayman Islands, is fighting extradition to the United States from Zurich, where he was arrested, and several others have denied the allegations. But some officials have already pleaded guilty and a few are co-operating with U.S. prosecutors, who have indicated that their investigation is far from over.

There is nothing in the documents to suggest that bribes were paid as part of the Scotiabank deal. But the bank is caught in the middle of what has become the biggest investigation in sports. "We are deeply disturbed by these allegations involving CONCACAF officials and take them very seriously. We have zero tolerance for these types of actions from any of our partners," the bank said in a statement to The Globe and Mail. "We are monitoring the situation very closely and will review our involvement as more details become available.

While CONCACAF and FIFA are at the centre of what has become a global investigation that has already led to the departure of FIFA president Sepp Blatter, much of the U.S. case focuses on a little-known marketing company called Traffic Sports USA.

Founded by a former radio reporter in Brazil, Traffic became the de facto marketing arm of CONCACAF, signing television-rights contracts and sponsorship deals worth hundreds of millions of dollars and pocketing substantial fees. But U.S. prosecutors allege that all of that came with a price: hefty bribes paid to soccer officials.

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Days after Federal Bureau of Investigation agents stormed the Miami offices of Traffic last week, signs of the raid can still be seen. The wooden door frame is splintered, showing exactly where investigators jammed a crowbar to pry their way inside, eventually leaving with boxes of files detailing Traffic's now-suspect dealings.

Among the most stunning revelations in the indictment is a March, 2014, meeting in New York that was recorded by the FBI in which Traffic executives appear to be fully aware that their actions are offside.

"Is it illegal?" Traffic Sports USA president Aaron Davidson says of a $2-million bribe discussed at the meeting. "It is illegal. Within the big picture of things, a company that has worked in this industry for 30 years, is it bad? It is bad."

Mr. Davidson, a 44-year-old lawyer who is now one of 14 people charged in the investigation, has pleaded not guilty. His boss, Jose Hawilla, founder of the U.S. division's parent company, Traffic Sports, in Sao Paulo, Brazil, secretly pleaded guilty to corruption charges in late 2014 and is said to be co-operating with investigators.

Traffic approached Scotiabank last summer about sponsoring the 41-country CONCACAF. The bank operates in 34 of those soccer-mad countries and jumped at the opportunity to put its brand on the game, signing a four-year deal to sponsor the league, which renamed its showcase tournament the Scotiabank CONCACAF Champions League.

After that approach, the bank ran background checks on Traffic, speaking with companies that had brokered sponsorships with Traffic before. According to Scotiabank, the company checked out.

However, other firms in the sports marketing world, including some who competed against Traffic, say the company had a poor reputation. Traffic's cozy relationship with the men who ran soccer was an open secret.

"Traffic is Traffic. They've been around for a long time; people have had questions," said Chris Renner, chief executive officer of Helios Partners, a significant player in the sports-rights business. "Nobody was surprised to hear they were involved – let's put it that way."

Another agency, Miami-based MP & Silva, often bid against Traffic for the right to resell FIFA broadcasting rights, yet it never came out on top.

"Everyone knew those relationships [with FIFA] were built on trust and confidence – or something else," founding partner Riccardo Silva told The Associated Press. "But it was clear that it was impossible to compete with them."

Scotiabank is not saying how much it spent on the CONCACAF deal, but industry insiders suggest that it is likely worth upward of $10-million.

The scandal has already triggered one clause in Scotiabank's contract, requiring CONCACAF to produce an emergency "reputational plan," which will outline how the federation plans to protect the bank's reputation from the fallout of the FIFA scandal. If that plan doesn't satisfy Scotiabank, the next step would be to demand financial compensation.

Beyond that, cancellation of the sponsorship is also a possibility, but one that the bank does not want to entertain, since it still covets the soccer market. Other sponsors, including credit card giant Visa, have threatened to pull their backing in the wake of the crisis.

"We went through a due-diligence process appropriate for a sponsorship arrangement and we built in financial and reputational safeguards," Scotiabank said.

Officials at Traffic declined comment and Mr. Davidson was not available.

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The origins of Traffic are in Brazil, where Mr. Hawilla, 71, built an empire in sports marketing virtually from scratch by securing exclusive marketing and advertising rights to the Brazilian national soccer team in the 1990s.

Mr. Hawilla is wildly rich, but keeps a low profile, shying away from high-society appearances and attention-getting philanthropy that marks many powerful figures in the world of soccer. He has been married for more than 30 years, has three children and loves golf.

His professional life began as a radio reporter, before he was fired in 1979 for leading a strike. He took the financial settlement from that dismissal and parlayed it into the purchase of a small company called Traffic, which sold advertising space in bus shelters.

In the 1980s, he went to work at Brazil's hegemonic media conglomerate Globo, running the TV sports department, and realized that his new company could make a fortune selling advertising space in stadiums. The TV job gave him an inside track: He knew which matches would be broadcast, so he would rent space at low fees and resell it at a premium to companies that wanted big ads during the games.

By the late 1980s, he was the dominant player in the Brazilian market, and his fortunes climbed higher still in 1989 when a friend of his, Ricardo Teixeira, was named president of the Brazilian Football Confederation (CBF). Mr. Teixeira was the son-in-law of Joao Havelange, who ran FIFA from 1974 to 1998, and helped to solidify Mr. Hawilla's connections.

The CBF and Traffic signed their first deals, for TV rights for the Brazilian soccer team's matches abroad, in 1987. By 2000, Traffic was the among the largest sports-marketing companies in the world. In 2003, it expanded into the United States.

By the early 2000s, soccer was growing in popularity in the United States, thanks to the 1994 World Cup, which was held in nine U.S. cities, and the rise of cable television, with its insatiable appetite for content. That drove up the price for television and other sponsorship rights for a host of CONCACAF tournaments, including the Gold Cup, Champions League and Copa Libertadores.

Companies such as Toyota Inc., Bridgestone Corp. and Nike Inc. lined up to sign deals, all managed by Traffic. And, in almost every case, filings allege, Traffic paid bribes to CONCACAF to ensure that the company kept winning the contract to manage the rights deals. Some of the cash ended up Swiss bank accounts while other amounts were billed to fictitious companies, filings allege.

At one point, a sportswear company, believed to be Nike, signed a $160-million sponsorship agreement to put its logo on the jerseys of the Brazilian national team. The deal, brokered by Traffic, included an additional payment of $40-million. which was divided among various CONCACAF officials, court filings allege.

Nike has denied any wrongdoing, saying there is nothing in the court filings to indicate that "any Nike employee was aware of or knowingly participated in any bribery or kickback scheme."

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As investigators pull apart Traffic's dealings, the trail inevitably has led them a few blocks away from Traffic's offices, to the Miami branch of Delta National Bank.

Delta is a private bank for wealthy South Americans. Its lone Miami branch sits on the fifth floor of an office tower, adorned in soft lighting and polished wood. A lone receptionist fields the well-heeled clients who drop by on appointment and disappear behind closed doors. To get past the front desk, clients must be high-income.

The bank is known for moving money back and forth between Miami and Brazil, where its headquarters are located, and it is through Traffic's accounts at the bank that U.S. investigators allege most of the bribery payments were executed. Delta National has run into troubles before: In 2003, it was sanctioned for not filing proper paperwork on suspicious transactions.

A manager at the bank told The Globe that he would not comment on the allegations.

In the midst of the scandal that has engulfed the soccer world, FIFA still found time to celebrate this week. On Tuesday night, delegates filled the prestigious New World Center in Miami Beach for a gala to draw matchups for the upcoming Scotiabank CONCACAF Champions League.

The event was an example of the exposure Scotiabank's multimillion-dollar sponsorship deal buys the bank. Onstage, next to a former winner of the Miss Venezuela Pageant, sat the trophy each team will be playing for. It now bears Scotiabank's name as well.

When the gala ended, Ted Howard, who became the acting general secretary for CONCACAF amid a shakeup only a few days earlier, tried to put on his most optimistic face when speaking of where the sport goes from here. "Things move on," Mr. Howard said. "You just hope you'll get stronger from these things."

He then added: "We are working with the authorities and we are being totally complicit with all that they are requesting."

With a report from Manuela Andreoni