Business

US banks and regulators 'fail' to cut money laundering

Wall Street sign
Image caption Eric Lewis says US banks are failing in their duty as the first line of defence against money laundering

One of the US's top fraud investigators is warning that America's policing of money laundering is wide open to abuse.

Eric Lewis will tell a Congressional hearing on terrorist financing that billions of dollars are slipping through the US banking system.

In a testimony ahead of the hearing on Tuesday he says that only international action can stop the laundering.

The US Committee on Financial Services is taking evidence on "trends in terrorism financing".

Mr Lewis will tell the hearing the "powerful tools" to stop the laundering of drug and terrorist money "are not being used as vigorously and consistently as they could be".

Mr Lewis was legal counsel to the liquidators of the collapsed Bank of Credit and Commerce and is an adviser to liquidators running down the companies of fraudster Bernard Madoff.

He also represents the al-Gosaibi family of Saudi Arabia, which has been involved in a long-running dispute with the billionaire head of another Saudi family, Maan al-Sanea.

The Gosaibi family have alleged that Mr Sanea siphoned off billions of pounds through the US banking system in a complex fraud. Mr Sanea categorically disputes the claim.

As an example, Mr Lewis says in his testimony that the Gosaibi case raises "fundamental concerns about the safeguards that have been put in place to prevent our banking institutions from becoming instruments of terrorist financing or fraud or other financial crimes".

Mr Lewis said the alleged fraud appeared to involve the transfer of funds "on a dizzying scale", "yet there appear to have been no questions asked", he claimed in his testimony.

Inadequate fines

He criticised Wall Street' s due diligence, saying that this "first line of defence" often failed because banks are "heavily incentivised to look the other way" when a large slice of business comes their way.

Fines imposed on banks are often too small to make an impact.

Mr Lewis said: "The bottom line is that fines are still viewed by banks as unlikely to occur, and if they do occur, they are a cost of doing business, and, until that changes, banks will not be good policemen."

He said that the global nature of fraud, in which transactions pass through many jurisdictions, meant that closer international cooperation was needed to help combat it.

However, Mr Lewis believes that only the US "possesses the resources and tools to protect the global financial system".

"If the US does not take on this responsibility, it will both undermine its own security and fail to do its part for global security interests," he said.

'Vulnerable'

Another expert witness at the hearing, Victor Comras, also felt that the US must give greater focus to banks and financial institutions abroad.

Mr Comras, special counsel at the Eren Law firm and former diplomat, said that the US had made great strides in cracking down on money laundering in America.

But he said in his pre-hearing testimony: "US banks are intricately networked into an international banking system and… remain awkwardly vulnerable to getting caught up in handling terrorist group-related transactions that originate overseas."

The problem was, US banks rely heavily on the accuracy of transactional information given to them by foreign banks. But very often US banks have to take that information on trust, he said.

"It is essential that we broaden the focus of our attention, when it comes to inhibiting the financing of terrorism, to include financial institutions beyond out shores," Mr Comras said.

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