Oral Testimony Provided by Eric Lewis, Partner, Baach Robinson & Lewis, at Today's House Financial Services Subcommittee on Oversight and Investigations Hearing on Current and Evolving Trends in Terrorist Financing

WASHINGTON, Sept. 28 /PRNewswire-USNewswire/ -- The following is the full text of the oral testimony given by Eric Lewis, Partner, Baach Robinson & Lewis, at today's House Financial Services Subcommittee on Oversight and Investigations Hearing: "A Review of Current and Evolving Trends in Terrorist Financing."

"I would like to thank the Chairman and distinguished Members of the Subcommittee for the opportunity to testify today regarding one of the largest abuses ever of the U.S. banking system.

"The fraud and money laundering scheme that I will discuss involves the transfer of approximately $1 trillion through the United States financial system, all directed by a Saudi national named Maan Al Sanea, using a Saudi Arabian remittance company called The Money Exchange, as well as two banks that he controlled in Bahrain and other companies he controlled in the Cayman Islands and Switzerland. The fraud appears to have deprived its victims of more than $20 billion, making it larger than the Madoff fraud in actual losses.  Yet there were no questions asked—not by banks, not by regulators, not by prosecutors—until the whole scheme collapsed.  

"The Money Exchange's main US dollar account was with Bank of America in New York. The Money Exchange had a total transactional volume for its remittance customers of perhaps $60 million per year in total.  Nevertheless, it approached Bank of America and said it would like to open a correspondent account in New York in order to transact $15 billion in payments annually.  

"At least four enormous red flags presented themselves immediately: (i) a 'high risk' region and country—the Middle East and Saudi Arabia; (ii) a business that accepts money transfers for 'walk-in' customers with whom it has no account relationship and does none of the necessary due diligence; (iii) a massive transactional volume; and (iv) a volume of transactions vastly disproportionate to the customer's ostensible business.  

"One would expect a searching interrogation of this customer; a careful evaluation of the intended use of the account; of the source, destination, and business purpose of the funds flowing through; and, because the prospective customer is itself a financial institution, a thorough investigation of its anti-money-laundering and know-your-customer policies. Yet, our investigation has revealed no evidence of any significant due diligence or AML investigation by BOA of the Money Exchange. The two Bahraini banks—Awal Bank and The International Banking Corporation—had no legitimate customers; they were created and used by Al Sanea to borrow money and then funnel it through the U.S. financial system to dummy customers and then to his own companies.

"U.S. anti-money-laundering and anti-terror finance policy is a two-part defense, involving pre-event diligence by banks (backed by regulatory oversight) and post-event law enforcement where the initial diligence has failed to detect or prevent money laundering.  Banks are the critical first line of defense, supported by clear regulation.  But banks often have financial incentives to look the other way and fines for non-compliance are still viewed as unlikely to occur, and if they do occur, they are a cost of doing business.  That must change if the system is to work effectively.

"Our regulatory regime also needs to make clear that if banks agree to open dollar accounts for customers, it doesn't matter if the relationship is based elsewhere, that customer must be subject to all of the scrutiny and rigor applied to someone who walks off the street in midtown Manhattan.

"We are not aware of any investigations ongoing by the relevant regulator here into this massive systemic failure. We understand that Congressman Peter King wrote to the Attorney General to request an investigation, but we have received no requests for information from the Department of Justice.    

"The United States alone possesses the resources and the tools to protect the global financial system from international financial crime, money laundering and terror finance. And the United States has an overwhelming national security interest in taking the lead in this area. We cannot delegate this critical responsibility to others.  This fraud involved more than a dozen countries around the world.  Each of them had only a piece of the fraud; each can claim it can only investigate a small piece of a larger global problem; each can claim t some other country has greater responsibility.  But in an age when international fraudsters and money launderers can cross borders with the click of a mouse and the response is, 'it's not our responsibility,' this is a recipe for disaster.  Banks must diligently inquire into their customers and their customers' customers. Wrongdoers must be investigated, charged, extradited and prosecuted.  The United States must lead, but cooperation must be sought.  Saudi Arabia is a committed ally in the fight against terror finance and I have no doubt that if the U.S. underlined the importance of getting to the bottom of this massive money laundering scheme, Saudi Arabia would cooperate.

"Extensive new legislation is not needed.  The critical need is for strong oversight and firm priorities, together with clearly defined responsibilities and accountability.

"Thank you."

Mr. Lewis's five-minute oral testimony to the committee will be provided today at the 4:00 P.M. hearing.  The link to view his testimony online via C-SPAN is: http://financialservices.house.gov/Hearings/hearingDetails.aspx?NewsID=1364

His full written testimony can be accessed via the House Financial Services Committee website here: http://financialservices.house.gov/Media/file/hearings/111/Lewis092810.pdf

SOURCE Baach Robinson & Lewis