Boris Lvin (bbb) wrote,
Boris Lvin

Дело БОНИ - показания Томаса Реньи

Chairman LEACH. <...> Our third panel is—we welcome Thomas A. Renyi. Mr. Renyi is Chairman of the Board and the Chief Executive Officer of the Bank of New York.

And your full statement will be placed in the record. And you may proceed as you see fit and read the full statement or parts as you prefer.


Mr. RENYI. Thank you, Mr. Chairman. Mr. Chairman, Members of the committee, my name is Tom Renyi, and I am Chairman of the Board and Chief Executive Officer of the Bank of New York.

I appreciate the opportunity to testify before the House Banking Committee on behalf of the Bank of New York. Our bank was founded in 1784 by Alexander Hamilton. Our business today focuses on the global financial services sector, and we are one of the leading correspondent banks for commercial banks around the world. We provide corporate and retail services in our home market, as well as a variety of other trust and investment services.

The Bank of New York has consistently enjoyed a reputation for prudence and responsibility while producing amongst the highest earnings in our industry for our shareholders. I have been dismayed by suggestions in the press that the Bank of New York was somehow actively involved in the reported Russian money laundering scandals. Let me said the record straight, no charges have been filed against the Bank of New York, no relevant authorities have asserted that the bank is engaged in money laundering or violated any other law. No customer of the bank, nor the bank itself has lost money as a result of the activities in question.

During the past year, we have worked closely with all of the ongoing investigations. We have provided thousands of documents and millions of electronic bits of information, and these investigations are not yet complete. They remain highly confidential, and as you can understand, there are limits to what we can disclose prior to their completion.

Mr. Chairman, in my written statement I have provided detailed information on the six specific topics raised in your letter inviting me to appear today. I would like to use this limited time available to me now to discuss several basic questions: What events actually took place, how did they take place, what have we done as a result of these events, and the subsequent inquiry. And, finally, Mr. Chairman, I would like to suggest policy issues that the committee may wish to consider.

Press accounts have tended to ignore the Bank of New York's cooperation with the investigating agencies both here and abroad. And although, Mr. Chairman, there are limits as to what I can say again about these investigations, let me try and describe what I can.

The bank learned of these investigations a year ago in September of 1998, and when we requested the U.S. Attorney's permission to close the accounts, we were asked to keep the accounts open, to advise no one, other than our bank regulators, and to take no action that would compromise the investigations. We did all of these things.

This was our commitment then, and it remains our commitment now to cooperate fully with all law enforcement agencies. Now when opened, the accounts were quite normal. The principal accounts were opened at a New York City branch of the bank by Peter Berlin, a New Jersey resident, who became a U.S. citizen in 1996 and who represented himself as operating small businesses in the New York metropolitan area.

The accounts were referred to us by an officer of the bank, Lucy Edwards, Mr. Berlin's wife. The initial history of these accounts were unremarkable and account activity was consistent with a modest business.

However, the volume of funds moving through these accounts increased to levels well beyond what would have been expected for businesses of this kind. And when bank employees noticed the increase in volume, questions were raised within the bank both about Mr. Berlin and his companies. But the questions were not pursued with sufficient vigor or follow-through and the questioners relied too heavily on the fact that Mr. Berlin was married to a well-regarded bank officer, Ms. Edwards, who again originally referred the accounts.

Allowing these accounts to remain open and active without sufficient questioning was a lapse on the part of the bank, and I have taken personal responsibility for implementing remedial actions, which I will describe later in my testimony. But let me turn, Mr. Chairman, to the Bank of New York's business dealings in Russia. The bank has done business in Russia since 1922. And with the collapse of the Soviet Union in 1991, a new banking system began to emerge in Russia. And we, as many of the nation's leading commercial and investment banks, were asked to aid in the development of their banking system.

The role we chose was similar to what we do in many other countries and more limited than what many other banks chose. In our case, correspondent banking and securities processing activities, bank-to-bank business that generates stable predictable fees with relatively low risk in capital exposure was what we chose. To correct any misimpressions, I want to underscore the fact that Bank of New York has no branches or bank subsidiaries in Russia, just a small five-person office that performs administrative functions.

When we open correspondent relationships, we are selective. We do business only with banks that meet the high standards in their particular marketplace. We require documentation from them as to the legality and the creditworthiness of their businesses and we review their capital adequacy and their reputation in the local marketplace.

But having a correspondent relationship with a bank, Mr. Chairman, does not give us nor any bank much direct knowledge about that correspondent's customer accounts. This results from the opaque nature of the electronic global payment system. Information regarding the sender and receiver of funds consists little more than sums, account numbers and digital information regarding the bank identified.

The system is excellent at tracking funds' flows within its electronic pathways, but the system is not very good at identifying who controls the origination or destination accounts, how they may have come by the money or what they plan to do with it. So we share that frustration that all of the authorities who are our partners in these ongoing investigations have regarding these accounts.

In the last five weeks, we have examined vast amounts of data, but we do not have all of the answers that we want and we don't know when or if we will. Working with outside auditors, we have reviewed the program we employ for identifying and reporting suspicious activity, and we have identified several areas of our improvements and have implemented already most of the changes.

We have formed——

Chairman LEACH. Mr. Renyi, if I can interrupt you for just a second.

Mr. RENYI. I'm sorry, Mr. Chairman.

Chairman LEACH. I apologize, we are interrupted by a vote on the floor, maybe several votes, and it strikes me that it might be better to recess in the middle of your testimony than just before you finish so that you have a better chance to give a flow.

Mr. RENYI. Fine, Mr. Chairman.

Chairman LEACH. So what I would suggest is that the hearing recess pending the several votes, and then we will return to your testimony. And you can proceed as you see fit at that time.

Mr. RENYI. Very well.

Chairman LEACH. So the hearing will be in recess pending the vote.

Mr. RENYI. Thank you.


Chairman LEACH. The hearing will reconvene.

When we recessed for a series of votes, Mr. Renyi was in the middle of his testimony, and I would like him to proceed.

Mr. RENYI. Thank you, Mr. Chairman.

Prior to the vote, I had summarized much of the activities that were taking place in the Bank of New York that is subject to our investigation and, most importantly, what we did about them, what we are doing about those activities, those investigations.

I was at the point where I would like to really discuss and offer some public policy commentary and being that one of the central issues, one of the central questions that are coming before this subcommittee is the possible misuse of international funds transfer system, which we feel is a truly important issue that affects clearly all of the banking system here in the U.S.

It is an issue that has two components, the granting of access to the global payment system and the monitoring of activity taking place within the system. Mr. Chairman, if Congress concludes that the access to the payment system should be tightened, I would urge strongly that this be done through a process of international cooperation, otherwise, if we restrict access in any one country, we may simply drive would-be wrongdoers to less stringent points of entry into the system.

The U.S. dollars, the unquestioned currency of choice of payments, for payments moving through the global system, any policy action that reduces the importance and attractiveness of the U.S. dollar for world trade would place the United States at a competitive disadvantage.

As we look at monitoring activity within the payment system, we should as well determine how U.S. foreign policy should address illicit business activity that uses this payment system.

Today, an agency of the U.S. Treasury, the Office of Foreign Access Control provides enforcement against academically embargoed countries. Should that approach be applied to money laundering? Should it be applied to capital flight? Could it be done without hindering legitimate trade flows? And if we choose to step up surveillance activities, can we do so with appropriate respect for our fellow citizens' right to privacy?

Mr. Chairman, you have expressed a policy concern about the role of U.S. banks in establishing correspondent relationships in Russia and other emerging countries where there are clear concerns for corruption. Let us be careful that if Western banks redline Russian banks, the emergence of a modern capitalistic economy in Russia will probably be impossible.

In conclusion, I believe that these are legitimate and important issues that touch on the central themes of these hearings. Yet the broader considerations should not obscure the essential responsibility that we and all the participants in the global system have in ensuring its appropriate use. When any financial institution provides access to the system or facilitates its use, it must do everything it can to prevent illicit activity from taking place as a result. And if illicit activity does take place, it must detect it and bring it promptly to the attention of appropriate authorities. This is our responsibility and on behalf of the Bank of New York, I reaffirm that responsibility today.

Thank you, Mr. Chairman.

Chairman LEACH. Thank you very much, Mr. Renyi.

Let me say that there is an element of awkwardness in all of this hearing in that we have before us today one of the most reputable banks in the world and a bank with an enormous history, in fact, as stated in your initial comments, the oldest bank in the United States founded by the man many of us considered to be our greatest Secretary of the Treasury, Alexander Hamilton.

The fact that it is such a great bank and such a reputable bank makes the questions at stake rather large, because if our best and strongest are part of a system in which money can be laundered, whether it be through fault or not fault of the bank, is very difficult.

So let me just begin by saying, can you give us a sense of the magnitude of funds that you believe have come from Russia through your bank?

Mr. RENYI. I am sorry, I didn't hear you. What is the source?

Chairman LEACH. The magnitude of funds that would be considered in a traditional way. You know, press accounts are in the $10 billion figure; you indicated to me privately perhaps less than that.

Mr. RENYI. Somewhat less than that. We are in the process of our own investigation, which really started five weeks ago when the leak first occurred in the press, and as you can imagine, this is a very, very complex, very complex situation to review, and there are literally thousands of pages of documents, thousands of credits and debits flowing in these accounts.

What we have been able to determine is that the central accounts in question here that were controlled seemingly by Mr. Berlin moved $7.5 billion over the past three years, roughly three and one-quarter years, roughly even throughout the course of those 3 1/2-3 1/4 years. So the magnitude is very substantial under virtually any type of measurement.

Chairman LEACH. So these are the accounts controlled by this one individual? How many Russian banks are correspondents that you work with?

Mr. RENYI. Today, Mr. Chairman, we have roughly 160 banks that we work with. That represents approximately 10 percent of the universe in Russia today.

Chairman LEACH. Yesterday a former CIA station chief indicated that his judgment was about 85 percent of the Russian banks are fraudulent, and the figures are a given kind of magnitude that have been talked about for some time, and that Russian banks in many cases are considered money laundering platforms.

Do you have figures on dollar volume of Russian bank funds run through your bank?

Mr. RENYI. We do, Mr. Chairman. Obviously through the course of this examination, we have literally pored over every type of statistic that we can to develop a sense of dimension to this issue within our own organization. I think it gives some degree of dimension as well to the issue overall through the U.S. banking system.

With regard to our banks, our correspondent banks in Russia, we looked at specifically a timeframe of last July and last August, which coincides with the IMF payment last year, to determine what volumes were flowing through our accounts. And at that time it was $3.7 billion per day.

Chairman LEACH. $2.7 billion per day?

Mr. RENYI. $3.7 billion per day on average and a fairly tight range, $3.2 to $3.8 billion.

Chairman LEACH. How would this relate to say three months earlier and three months later?

Mr. RENYI. It appeared to be very, very similar. There was a slight runup since the early part of 1998, but it has stayed very stable around that $3.7 billion. I might add that represents less than 1.5 percent of all of the dollars that we clear for all of our correspondents, which is about $600 billion.

Chairman LEACH. Of these amounts, how many would have had any origin in let us say from offshore banks, or are these directly from Russia?

Mr. RENYI. This would all be from Russia.

Chairman LEACH. Directly?

Mr. RENYI. These are all Russian.

Chairman LEACH. Using no intermediaries?

Mr. RENYI. Russian domiciled organizations, yes, Mr. Chairman.

Chairman LEACH. Now you have an offshore subsidiary, is that correct, in the Caymans?

Mr. RENYI. We have both a branch and a subsidiary trust company.

Chairman LEACH. For what reason would you have a branch in the Caymans?

Mr. RENYI. The Caymans branch is a funding vehicle for the bank overall. It is similar to virtually every Cayman branch that any U.S. bank would have. It strictly offers an ability for us to be able to quote different rates than what we have here in the U.S. The Cayman branch that we have is under the jurisdiction of the Federal Reserve.

Chairman LEACH. Now, today's Wall Street Journal reports that investigators were reviewing two accounts at your Cayman branch that are beneficially owned by Leonid Dyachenko, who is married to President Yeltsin's daughter and close political adviser Tatyana.

The article suggests that the Cayman accounts were opened in the names of two offshore companies, the ownership of which appears to be a bit unclear, and the deposits into the account came from two companies owned by Mr. Dyachenko and incorporated in the Caymans. These two companies are in turn reported to be affiliated with the Russian company that published President Yeltsin's memoirs.

Can you tell us, first, is it true that the Bank of New York maintains accounts for Mr. Dyachenko in the Cayman Islands?

Mr. RENYI. As you can imagine, Mr. Chairman, this is an exceptionally sensitive issue. Because it is very much under the purview of the ongoing investigation, we by policy do not discuss relationships with any of our clients. That is a policy that is shared by virtually every bank that I am aware of, compounded by the issue surrounding the investigation. Obviously given the commentary today in today's press, what I can say is to confirm the fact that those two accounts do exist at the Bank of New York, that Cayman Island branch. Again, as any deposits that may be, any accounts in the Cayman Island branch is under the supervision and jurisdiction of the Federal Reserve, just as every branch in the United States is.

Chairman LEACH. Jurisdiction implies regulatory.

Mr. RENYI. Regulatory review.

Chairman LEACH. But that is different than legal jurisdiction.

Mr. RENYI. I am implying the regulatory review.

Chairman LEACH. I think that is a distinction that is of some profoundness.

Did you make inquiries to determine who the beneficial owners were when these deposits were made? Did you know that at the time?

Mr. RENYI. That, Mr. Chairman, I am again quite sensitive to, and I am not sure I am in a position to respond to that, again, given the ongoing investigation.

Chairman LEACH. This is just a question for the bank, to the bank's knowledge.

Mr. RENYI. In terms of the bank's own actions, yes, we did. We asked and went through, to the best of my knowledge, and I have reviewed that, the typical routines that we have for know your customer, which includes an identification of the beneficial owner and source of proceeds.

Chairman LEACH. Do you maintain accounts, to your knowledge, for any other members of President Yeltsin's inner circle?

Mr. RENYI. To my knowledge, no. And I might add, we have tried to do as thorough an investigation over the course of the five weeks to try and identify any of those accounts.

Chairman LEACH. Is there anything unique about Russian bank correspondent relationships with your bank; that is, relative to other countries? Do you charge different fees? Do they have different patterns of activity?

Mr. RENYI. The style and the character of the business that we do with our Russian correspondents are very, very similar to what we do elsewhere in the country and elsewhere in the world, especially as it relates to other emerging or developing countries. In those types of countries, our correspondent banking business tends very much to be in the deposit side of the dollar clearing, in providing cash management services with a very modest level of credit exposure, and that does exist, that profile, that character is very, very similar—in Russia—similar to everyone else.

In terms of the fees, we did also investigate. Again given the press reports that would indicate that significant amounts of profitability were gained from our Russian business, I looked very specifically at fee comparisons as to what we have been able to charge, what we charge for our Russian correspondent banking business and elsewhere around the world and where we have found, with the exception of Europe, which is the most competitive portion of the world, Eastern Europe, generally in Russia, in particular, had the next lowest rate fee, rate of fees that we were charging.

I asked why, and the immediate response is the competitive atmosphere, given the fact that we are not the only organization that has similar banking relationships, correspondent banking relationships and dollar clearing accounts.

Chairman LEACH. Let me be clear about this. You just go to the numbers, because numbers can be numbing. We had $7.5 billion cleared through one account, and $3.5 billion a day through just general correspondent relationships with Russian banks?

Mr. RENYI. Yes.

Chairman LEACH. To your knowledge, is this typical of other banks in New York, or are you different?

Mr. RENYI. I believe it is typical, Mr. Chairman. The $7.5 billion that I referred to was a cumulative number over three years. The average volume per day was approximately $6 million. I think there is a need to compare that and characterize that in the context of our overall clearing, which I indicated was about $600 billion a day for all of our correspondent banking relationships.

Mr. LAFALCE. Can I interject for one second, are you comparing $6 million to $6 billion per day?

Mr. RENYI. In terms of the dollar clearing that we do, yes.

Mr. LAFALCE. I wasn't sure that I got the Ms and the Bs straight. Thank you.

Mr. RENYI. There were three, three figures, three statistics that, Mr. Chairman, I think you were discussing, and that is the daily flow within the principal accounts of the so-called Berlin accounts, all of our correspondent banking within Russia and then our entire dollar clearing business enterprisewide, and that is $6 million for the Berlin accounts, $3.7 billion per day with regard to the Russian banking correspondents, and $600 billion enterprisewide. We are the second largest dollar clearing organization in the U.S.

Chairman LEACH. As a financial company that is central to this worldwide movement of capital, what is your personal sense over the last three or four years of how Russia is behaving? Do you have a view that we have a problem in this great country of Russia, or is this something that the bank is neutral about?

Mr. RENYI. Well, I suspect, Mr. Chairman, that just given the nature of the proceedings and what I heard last night on television of yesterday's proceedings and clearly seeing this firsthand myself this morning, it is not an uncomplex issue. There are a lot of other very countervailing forces here. Clearly there is an intention since 1991 to bring Russia west, if you will, to effectively provide for them to offer to them a Westernized capital markets.

We also have, I think, as an intention from a government-to-government view to certainly support Russia in its view to democracy, what we have found in every other country that the strength of a democracy, the strength of an economy is based on its banking system, and, thus, when we were asked when we saw opportunities clearly as a commercial bank in the U.S. dealing with offshore components to be able to conduct business and then encouraged by numerous governmental agencies to be supportive with regard to the development of a capital market, we saw great opportunity, therefore—and encouragement, and therefore we have been active as many banks, as very many commercial banks as well as investment banks within that Russian market.

At the very same time, we clearly have been seeing the growing pains that exist within Russia as it has been in virtually every emerging country. Every developing country has gone through similar phases, if you will. The degree of volatility within the Russian economy, Russian banking system may be somewhat unique. I am not sure I am the best person to respond to that.

Chairman LEACH. Let me just conclude with one kind of tying the numbers. You have indicated a figure for Russian banks, you have indicated a figure for the Berlin associated companies. Are there other Russian companies or individuals that you have figures for?

Mr. RENYI. No, that is by far and away the statistics—there is, I don't believe, any relevant statistics, I think, relative to the issue on the table today.

Chairman LEACH. Thank you.

Mr. LaFalce.

Mr. LAFALCE. Thank you very much.

Let me make sure I have a correct, accurate grasp of the statistics. When you were referring to $6 million per day, you were referring to one account, the Berlin account; is that correct?

Mr. RENYI. To be very clear, it is several accounts, but it is essentially operated by one individual.

Mr. LAFALCE. About how many different accounts operate?

Mr. RENYI. Approximately I believe there were eight in total. I think there were probably three or four active at any one time.

Mr. LAFALCE. I see. Are these bunched together in any computer's mind or any——

Mr. RENYI. Yes.

Mr. LAFALCE. You would review those?

Mr. RENYI. Absolutely, they were clustered to a point where we had one individual overlooking all of them.

Mr. LAFALCE. So we can look at the $6 million. And then the next data is $3.7 billion per day, is that correct, and that was for all Russian accounts?

Mr. RENYI. All Russian correspondent bank accounts.

Mr. LAFALCE. Correspondent bank accounts, yes.

Mr. RENYI. Yes.

Mr. LAFALCE. And then the third figure was $600 billion per day, and that was for all correspondent bank accounts; is that correct?

Mr. RENYI. That is correct, sir.

Mr. LAFALCE. OK. Was there anything that in retrospect should have raised a red flag either to you or someone working under you or to the Federal regulator responsible for the Federal Reserve Board.

Mr. RENYI. There certainly were flags that were raised not necessarily unfortunately to my level personally or to the regulators, but that there were individuals who supervised the account on a day-to-day basis who did see a marked increase in volume over what was originally reported to be or represented to be expected to go through those accounts.

Those individuals who did raise the questions unfortunately raised them without really much vigor, without much follow-through, without raising it up through their own chain of command within their own organization. Our own investigation would indicate that those individuals took comfort in the fact that those accounts, particular accounts, were referred to by a very well regarded bank officer, who happened to be Mr. Berlin's wife.

Unfortunately, I can't get into the psyche of those individuals and in the minds of those particular individuals, but they did not see the obvious conflict that we might see in hindsight.

Mr. LAFALCE. All right, thank you. The Federal Reserve Board has the legal regulatory authority over the Bank of New York?

Mr. RENYI. That is correct, sir.

Mr. LAFALCE. Now, A: what does that authority consist of with respect to accounts like this, and what is the nature of their periodic examinations of accounts such as this, most especially with respect to the money laundering laws? It is my understanding that the law enforcement officials criminally rely in large part on the regulatory authority's examinations to detect whether there is some criminal violation of the money laundering laws.

Can you expound upon that?

Mr. RENYI. Congressman, it probably is a very appropriate question. I suspect that even a better person to respond to that would be some Federal Reserve officers. However, from my perspective, as someone who is regulated by the Federal Reserve, my experience has been is that they would come in and review, in a very thorough manner, I might add, the process upon which we organize and manage our own organization. In certain areas such as credit extension, they take an even further and more detailed review of our accounts.

One of the very basic components of a Federal Reserve exam is reviewing the nature of the oversight process we have not only in anti-money laundering or in Know Your Customer, but as well every other facet of our management approach to the bank. So they are very much intent on looking at our management team and looking at the organization.

Mr. LAFALCE. So their examination is more of system than account examination?

Mr. RENYI. That is correct. It is much more systemic, much more process-oriented reviewing the reports that I might see, other members of our management team might see.

Mr. LAFALCE. One of the difficulties is if criminal enforcers are reliant upon that examination, a systems evaluation is probably the least likely to discover some type of wrongdoing, I would think.

Mr. RENYI. It would certainly discover if there was anything that was truly systemic or endemic in the organization. There would be no question, I think, that the Federal Reserve and any regulator, whether it is the Fed or OCC or even our own State banking regulators in New York, would look at the situation to determine is there a systemic issue. If it is a case where there is an isolated issue with regard to a set of accounts, they may or may not pick that up. That is something clearly our own internal auditors should also pick up.

Mr. LAFALCE. Let me ask you two more questions, if I might try to ask them at the same time. On the one hand, we hold dear to the principle that all individuals are presumed innocent until proven guilty. On the other hand, you have to file Suspicious Activity Reports, and I am wondering how you draw the line, you know, where is the gray area, what do you do. That is the first question.

The second question is this: I know that there are bankers groups that get together to discuss the appropriate use of derivatives, and so forth. Is there a group of bankers that gets together to discuss the approach that banks will take domestically and internationally with respect to money laundering? And the reason I ask this question is because if some banks are very, very rigorous, they just might not get the business, and so some other banks might be less rigorous and obtain the business. There could be a competition for laxity, both domestically and internationally, and I am just wondering if within the banking community there is any coordinating mechanism, group of CEOs, and so forth, that gets together to discuss this. If everybody has to live by the same rules, it is great. If somebody doesn't have to live or doesn't live by those rules, they have an unbelievably unfair competitive advantage.

Those are two questions I would like you to answer.

Mr. RENYI. Let me answer the first, and that is with regard to any cooperative efforts. Personally I am not aware of any efforts at a chief executive or an executive management level, and I really don't have—no, I can't identify a particular group within the U.S. or certainly extraterritorial, outside the U.S., that meets specifically on any money laundering issues. I think it would be a very good suggestion. It may or may not exist, and I would suggest that possibly some of our compliance officers within our organization who are attending these—we do have it, a local-level New York clearinghouse, we do have committees that look specifically at these issues.

Within the first question, with regard to SAR, and I think your point is with regard to privacy, specifically the regulations surrounding the Suspicious Activity Report filings require absolute privacy, absolute confidentiality for, I think, the very specific reason you are intimating here in that there could be a guilty-until-proven-innocent view toward any accounts we might file an SAR on. To that extent we are under strict guidance not to reveal filings of SARs, and I suspect for that very specific reason.

Mr. LAFALCE. Not to reveal to whom?

Mr. RENYI. Not to reveal to the public.

Mr. LAFALCE. My question is whether you reveal them to the public. You do file them. You are mandated to file them. Who do you file them with, and how do you make the judgment as to whether to file or not? If I go to, you know, three different caseworkers, and I ask in my district how many cases do you have, I find out each of them has a different measurement as to what constitutes a case. Some might say a phone call does, somebody else might say it is not a case unless I have to work on it for at least a week or so, and I am just wondering what goes on in your bank's mind in determining whether or not to file a Suspicious Activity Report report, and is there any commonality that is enforced by the regulators on this issue?

Mr. RENYI. Well, Congressman, I don't believe that there is, and I don't know the regulations precisely, but I know what we do and how we do it, which leads me to believe that there is not necessarily a preset criteria of review that each bank must follow in order to file an SAR. I say that because we have filed many, many hundreds of SARs over the past year or two. Most recently, obviously, given the incredible oversight that the press reports and this investigation has created, we are filing many, many more for simply the reason that we see that a particular account may have received a debit or a credit from a name that we see in the press, and to err on the cautiousness side, we would file an SAR.

Mr. LAFALCE. Thank you.

Chairman LEACH. Mrs. Roukema.

Mrs. ROUKEMA. Mr. Chairman, you indicated in your introduction that you had an element of awkwardness here because of the status of the bank. I have another element of awkwardness here, which I only learned about last night, and that is that Mr. Renyi is a constituent of mine. I learned that last night. This makes questioning a little awkward, but I think we can speak frankly and directly in the interest of getting full information so that we can do our job and that you can do your job. I recognize that the bank is under investigation, but no charges, as you quite correctly pointed out, have been made.

But it seems to me, with all due respect, I do have to point out you just ended your discussion with Mr. LaFalce with respect to the Suspicious Activity Reports, and I don't know exactly how this fits in, but it seems to me that it should have been caught earlier, because it was over a period of years, involving billions of dollars, and with the fact that Mr. Berlin and Lucy Edwards, and officer of the bank, were married. It would seem to me that there should have been some understanding of the potential for the conflict of interest. Can you tell me either how you dealt with that and why you dismissed the need for the SARs to be filed and how you now would apply it in view of the experience and the new knowledge that you have in understanding?

And then I want to go on to the global payment system.

Mr. RENYI. There are really, Congresswoman Roukema, there are two issues I think you raised in that question, and that is, one, the filing of an SAR, and then the conflict of interest. The SAR, to begin with, during the course of those three years of activity within those Berlin accounts, there is no question that people at a lower level, people who are looking over the operations of that account, raised issues, raised questions as to the validity or the rationale as to why the volume, vis-a-vis an export/import company or a tour company, of which he variously over a period of time identified himself as, why that volume would exist. So that we do see people in our organization, again retrospectively, who have identified an issue, but not sufficient follow-through, and I think that is where clearly the awkwardness, the embarrassment on our part, mine in particular, as to why those individuals saw fit not to report that up the chain of command which ultimately would have resulted in an SAR, it did not get up to a level which was the compliance officer in those particular areas, and that is, I think, the awkward question here, why an SAR was not filed.

Mrs. ROUKEMA. How can we reform that system in this legislation that we are dealing with? I am an enthusiastic co-sponsor, but I am not quite sure anything in this legislation will deal with targeting that responsibility.

Mr. RENYI. That is very much of an internal issue, Congresswoman. I don't think I saw in the brief read of the legislation proposed elements that deal directly with that. Having said that, I do think it is very much incumbent upon the organization itself not only to have the process which we do, but the culture of being inquisitive, of questioning, of ensuring that every question that has to be asked is asked, and that no assumptions are made. The fact that people made an assumption that a well-regarded officer of the bank referred these accounts, gave an ability of that individual to be less concerned, that should not happen.

Mrs. ROUKEMA. I think this bears more review and study by those of us on the committee, but let me get to what you have quite correctly pointed out very well.

I believe, although I am not quite sure, that I understand the specifics of your recommendations about not only the nature of the global payment system, but the increasing complexity of it. I think you called it the opaque nature of it.

Mr. RENYI. Yes.

Mrs. ROUKEMA. And of course the huge daily volumes are increasing. I am not sure, have you given us some specific recommendations as to how we can deal with this legislatively, or is it just through regulatory authority?

Mr. RENYI. I have not offered what I would call great specifics or a great detailed recommendation with regard to the global payment system. Its characteristics of being huge, complex, immediate and instantaneous in its style for some very explicit reasons, because of its size, because of the cost of errors, the high cost of errors, the need for straight-through automatic processing also offers it this opaqueness that I referred to in my remarks and in my testimony whereby the information that is obtained from the global payment system in terms of the remitter and beneficiary of payments is quite abbreviated, very much in the form of digital code rather than more, in layman's terms, identifiers, words describing who owns the account, where is that money going to.

There are some very good reasons for that to happen, because as one puts words, sentences in direction and instructions as to where moneys go, there is the greater opportunity for error, and therefore, again, in an effort to ensure that there is a greater level of straight-through processing or automation, there has been this reduction of information that one might see as usable.

Having said that, I think the core of my recommendation here for the committee and the Congress to consider is access to the payment system, because once access is granted, once an individual has an ability to enter into the payment system, it is easily lost track of because of the nature of the system.

Mrs. ROUKEMA. So you mean controlling the access?

Mr. RENYI. Controlling the access, having greater, maybe more stringent requirements in terms of access to the system.

Mrs. ROUKEMA. I think the Chairman's bill does go into some of that. I don't know if it is as comprehensive as we might want to make it, given what happened here, but we do begin to—and maybe it is as much as we can do in that respect—make a lot more unlawful about falsification of identity in transactions with the banks. We will look at that again. Thank you very much. I appreciate your assistance here.

Chairman LEACH. Thank you, Marge.

Mrs. Maloney.

Mrs. MALONEY. Thank you, Mr. Chairman.

The Bank of New York case troubles me for a number of reasons. As we all know, the bank has played a ground-breaking role in the history of American finance. For over two centuries New Yorkers have entrusted the bank with their life savings. This is not a bank whose culture would be expected to lead itself into the center of a major scandal. The fact that such an incident would occur at such a respected bank is frightening to me. We have to wonder if this case is simply the tip of the iceberg.

While the guilt or the innocence of the parties involved is far from determined, it would appear that insiders in the bank were able to avoid detection until foreign investigators tipped off our Government. In other words, our money laundering laws would appear to break down when confronted with insider dealing. Would you agree with that, that our laws are not sufficient now, and they break down with insider dealing?

Mr. RENYI. Well, Congresswoman, I would say that virtually any law, virtually any regulation that would be imposed on any financial institution is at risk if there is, in fact, inside assistance. It is awfully difficult to deal with many of these issues in any way, but when there is the possibility, and I must be very careful here not to imply that there exists in our case here, but if that were to take place, it makes it even doubly difficult to deal with.

Mrs. MALONEY. To what extent was your institution's anti-money laundering policy reviewed by the Federal bank regulators? You testified earlier that they were looking at the systemic rather than actual transactions, but was there regular oversight, and was your bank ever cited as insufficient?

Mr. RENYI. There has been regular oversight. The Bank of New York has never been cited for inadequate anti-money laundering or Know Your Customers policies. It should be obvious to everyone that given the intense reporting with regard to this particular issue, that regulators have redoubled their efforts in terms of reviewing our systems internally, and I am confident that we will do well here.

Mrs. MALONEY. Chairman Leach, as we know, as has been cited earlier, is proposing legislation that would require financial institutions that open U.S. accounts to identify the beneficial owners of the accounts. It would also prohibit U.S. banks from opening correspondent accounts with so-called brass banks that are not subject to comprehensive home country supervision. How would these requirements impact upon your bank's operations on a day-to-day basis?

Mr. RENYI. Well, I think, Congresswoman, to respond succinctly, quite little, because our business is not to do business with these brass-plate blanks in these offshore areas. So greater scrutiny, greater restrictions or requirements in terms of review of these particular banks would have certainly no negative impact, and I would welcome the opportunity to comply with those.

Mrs. MALONEY. The requirement to identify the beneficial owners of the accounts, would that impact on your day-to-day operations at all?

Mr. RENYI. That may. I would need to know clearly a bit more of the detail as in virtually every piece of legislation that would impact the banking system. It depends upon the application, the evenness of the application, which then goes to other banks possibly outside the U.S. banking system, and certainly our ability to comply with those.

Mrs. MALONEY. To what extent do you believe money laundering is taking place in the United States banks, and what can be done to prevent bank officers from facilitating laundering? You testified that the two provisions I mentioned in the Chairman's proposed legislation have little impact, but what would you suggest should be done, and how extensive do you think?

Mr. RENYI. When I say little impact, I really mean, Congresswoman, that it would not negatively impact the Bank of New York; not the fact that it wouldn't be effective, but it would not pose a problem for us to be able to comply generically with that approach.

But I think your question with regard to the presence or the size of money laundering, that is an exceedingly difficult question, of course, to respond to. I think one of the issues that I sense is being debated here and that I offered as a possible public policy issue is the definition of money laundering, the distinction between money laundering and capital flight, some of which is, in fact, illegal, some of which has no restrictions by the host country. There is also the issue of being able to discern through the information that we would normally receive in the global payment system moneys that are sent to support legitimate business transactions or to support business transactions that are structured in the way to avoid local law, local taxes. That is a very difficult thing to distinguish in the best of circumstances.

So the issue of money laundering, and I go back, obviously, to our experience with these particular sets of accounts, given the vast amounts of data that we have reviewed, it is very difficult to determine which might be money laundering, which might be capital flight, which might be legitimate business transactions, and I suspect it might very well be some of each.

Mrs. MALONEY. My time is up. Thank you.

Chairman LEACH. Thank you, Ms. Maloney.

Mr. Bereuter.

Mr. BEREUTER. Thank you, Mr. Chairman.

Mr. Renyi, thank you. I heard your entire testimony and the Chairman's questions from the side, if I wasn't here directly. I will ask as many questions as I can here.

First of all, as I understand it, if a bank processes a transaction knowing that it is designed to conceal or disguise the nature of the proceeds, the bank could be charged criminally or have their charter revoked. Did anyone at the management level in your bank know of Russian money laundering through your bank?

Mr. RENYI. Absolutely not, Mr. Bereuter.

Mr. BEREUTER. Thank you.

Now, Barclays Bank announced last week that it is closing a substantial number of its accounts to Russian corporate customers out of concern that it cannot verify where funds are coming or going to. Has the Bank of New York considered scaling back its presence in Russia in light of the recent allegations of possible misuse of Russian-related accounts at the bank?

Mr. RENYI. Well, Congressman, I think again you can imagine the amount of review and oversight that is taking place within our own organization, throughout our organization with regard to these types of accounts. These types of corresponding relationships, it does not simply focus on Eastern Europe by any means. Having said that, clearly we are taking a second look, another look at each and every one of our relationships to ensure that they do comply with the highest levels of compliance, not only with anti-money laundering, but Know Your Customer requirements.

Mr. BEREUTER. Thank you.

Earlier, I think you gave a statistic of $3.7 billion from Russian correspondent banks on a daily basis. Now, that would not include corporate customers or other accounts coming from Russia or from Russian citizens; is that correct?

Mr. RENYI. We do not have corporate accounts in Russia. Any deposit relationship that we have, which I referred to the $3.7 billion, are strictly from the banking system. It is our policy only to do business on correspondent banking business with regard to credit and deposit-taking.

Mr. BEREUTER. Thank you.

Do you have correspondent banking relationships with entities domiciled in Antigua, Cyprus, and/or the Cayman Islands?

Mr. RENYI. With regard to Antigua, I believe we have one relationship. It is a relatively dormant one, very little transactions flowing through it. Cayman Islands, I am not quite sure. I do not believe we do. Cyprus, I believe we do, but I am not—I don't have the precise figures. I will be happy to come back with those.

Mr. BEREUTER. Thank you.

Has Mr. Bruce Rappaport assisted the Bank of New York in the past in developing clients or other business relationships in Russia or in Antigua?

Mr. RENYI. I understand the source of that question, given the press reports, but I can say that there has not been any involvement by Mr. Rappaport with regard to our Russian efforts. I think it was—as it was reported in the press—he assisted us in establishing our presence in Russia. That, in fact, was simply us being able to sublet some of his space that his bank, the Inter-Maritime Bank, has in Moscow for a one-year period. It does not go beyond that.

Mr. BEREUTER. You mentioned him in your statement.

Mr. RENYI. I did.

Mr. BEREUTER. You also mentioned his Ambassadorial role from Antigua to Russia and so on.

You had a little discussion before based on Mr. LaFalce's question related to the Suspicious Activity Reports, the SARs. Were any SAR reports or potential reports suppressed by management in your bank?

Mr. RENYI. Absolutely not, sir.

Mr. BEREUTER. If you had a deposit of, say, in excess of $5 million in currency coming to your bank, would it automatically or likely generate an SAR?

Mr. RENYI. $5 million in currency?

Mr. BEREUTER. Currency.

Mr. RENYI. Clearly would, absolutely. In fact, there is a regulation of deposits of $10,000 or more in currency, a report must be filed.

Mr. BEREUTER. Thank you.

I want to understand a little bit more about the relationship on Russian correspondent banks. Has the bank assisted any Russian banks in attempting to open representative offices in the U.S.? Have any applications been successful?

Mr. RENYI. We have, in fact, provided letters of recommendation to certain of our correspondent banks in Russia to open offices in the U.S. This has been part of the overall process of bringing the Russian banking system to the West to be able to allow them to conduct business along Western-styled banking. In some instances we have made those representations, but, again, only to those banks with whom we do business with and that we are comfortable with.

Mr. BEREUTER. But some would have been successful as far as you know?

Mr. RENYI. I believe some of them may have been successful. I don't know the specifics.

Mr. BEREUTER. I have one more question related to correspondent banks, if I may proceed.

Chairman LEACH. Please go right ahead.

Mr. BEREUTER. Thank you.

I would like to understand what kind of advantages or privileges of services go along with being a correspondent bank to the New York bank, especially, of course, those related to Russian correspondent banks. What privileges or services do they have by virtue of their correspondent status go through your bank?

Mr. RENYI. As a correspondent, the typical correspondent banking services that we offer certainly include dollar clearing, a principal service and really the heart of our correspondent banking business. In certain instances, we also might provide short-term credit on an overnight basis. We might very well provide foreign exchange transactions as well and possibly certain securities servicing arrangements with that. In terms of privilege, we view it as a privilege for them that they can list the Bank of New York as a correspondent, because it is, in fact, I think, a very rare, very privileged view that they can, in fact, use us as a correspondent, effectively access to the banking system, and again speaks to the diligence we do on a continuing basis.

Mr. BEREUTER. Thank you. Thank you, Mr. Chairman.

Chairman LEACH. Thank you. Mr. Forbes.

Mr. FORBES. Mr. Renyi, again, thank you for being here today, and I particularly appreciate that in your capacity you have taken full responsibility for straightening out the situation that led to the unfortunate revelations. And I think all of us were shocked that this undertaking was transpiring at the Bank of New York, certainly a venerable institution, well respected not just nationally, but internationally.

But let me just say that I learned today that more than I ever realized that money laundering is extremely widespread in this country, and that it is affecting far too many, and one is too many, but far too many of our financial institutions.

Since these revelations, have you heard from some of your colleagues across the country as they have maybe taken a long, hard look at their internal systems and lamented that perhaps they could be as vulnerable as the Bank of New York was, and do you have any sense in a way of validating what I think many of us have grown to understand, money laundering is a very, very widespread, serious problem in this country?

Mr. RENYI. Well, it certainly has piqued everyone's interest, Mr. Forbes. I think there is no question, and I can say universally without exception, every one of my counterparts that I have come into contact with over the last five weeks have said that this has clearly initiated a review internally. So if there is anything good that can come out of this particular issue, that of Bank of New York being the poster child for money laundering, unfairly I hope, certainly believe, then the fact that there is much more greater intention of looking at intensive review of internal operations throughout every bank in the country.

Mr. FORBES. Well, certainly an institution like the Bank of New York, I have no doubt that perhaps this certainly caused you and all of your officials to step back for a moment. I noticed in your testimony, as you said, it is very difficult to identify, you know, origination and destination of accounts, and I know that the domestic banking community has wanted very much to partner with emerging nations and particularly nations like Russia which are trying to be more democratic and get more marketplace—free-market enterprises going, and particularly reforming the banking industry there. But has there been consideration by your bank to suspend any business with Russia or any transactions that would come from Russia?

And just to add to that, and I know that is perhaps a pretty dramatic consideration, but I think you made clear also that it is very difficult, for example, to track and review transactions that come from some preset identifiers like Cuba and Havana and Baghdad and Iraq, and I think the larger question is do financial institutions in the wake of what has happened at Bank of New York and others seriously consider that maybe there are some places where we just don't accept transactions?

Mr. RENYI. At first—the last question in terms of is there an effort to seriously consider refusing transactions from certain countries? The short answer is yes. I think that it is a matter of what is the risk and can we really accept that risk. And I think it is clear, given the circumstances here, that may very well be areas that that is an unacceptable risk under any circumstances, and I don't mean in terms of profitability or awards, but simply risk to the organization, reputational risk, which is clearly what we have here to deal with at the Bank of New York.

Mr. FORBES. On another approach here, you know, Congress has this talent for when we see some kind of problem like we have seen with the Bank of New York and money laundering, that, you know, we want to go back in and rewrite some laws and make sure we are tougher on those laws. And I embrace those efforts, but it is hard not to think that maybe a good deal of this was tragic human oversight as far as the supervisors go and certainly outright criminality on others' part. But did the system break down, Mr. Renyi? Do you think the system broke down?

Mr. RENYI. Congressman, my view at this juncture and time is it is a preliminary review, given the fact that the investigation continues not only externally, but internally, that systems were in place. They did not necessarily break down, but their implementation was far less than perfect. Clearly the implementation was flawed. It allows us an opportunity, though, to enhance the systems, to be able to do what we can to take out the personal element in the oversight. I think that generally is an approach that we continue to follow in getting enhanced systems with artificial intelligence, behavioral analysis, so that we are taking the human element out of it. We are also attempting to take the relationship element out of it so that no one in the future has the ability to rely on any one other member of the organization for comfort as to the validity of a transaction or an account; the establishment of an anti-money laundering committee, of very senior people throughout the organization that has a mandate far broader and independent than ever before, certainly in our organization and, I suspect, anywhere else.

Mr. FORBES. Thank you, sir.

Chairman LEACH. Thank you, Mr. Forbes.

Mr. Lazio.

Mr. LAZIO. Hello, Mr. Renyi, nice to see you again. I wanted to ask you—I would like to clarify a few points, if I heard you correctly testify that the Bank of New York had no Russian corporate accounts. Was that accurate?

Mr. RENYI. Banking accounts where we either extend credit or accept deposits.

Mr. LAZIO. OK. Wire transfer account.

Mr. RENYI. We would not have a wire transfer account. What we would have would be the ADR-DR sponsorship relationships, which are an administrative function. It is a processing function where we do not accept deposits or extend credit.

Mr. LAZIO. Of these nine accounts, I understand it that they were controlled or in the name of Peter Berlin?

Mr. RENYI. Yes.

Mr. LAZIO. How would you characterize those accounts?

Mr. RENYI. Those are U.S. domestic accounts. They are companies that are incorporated here in the U.S. We would view those as domestic accounts, and, in fact, when they were opened, they were opened by a Russian national who subsequently became naturalized as a U.S. citizen. The business may be transaction-oriented in an offshore, but it would be viewed as a domestic U.S. company.

Mr. LAZIO. Now, let me ask you, is it possible for somebody, for an accountholder who has got a wire transfer account, to execute a wire transfer with a terminal off premises of the Bank of New York without the knowledge or assistance of a Bank of New York employee?

Mr. RENYI. We do have that service. It is a service that we, as well as—and we have checked this—virtually every other bank provides this particular type of service, which is a software-based service where we provide software for installation on personal computers, on-site locations which an individual can in fact initiate and execute transactions of wiring moneys out of their account, out of the bank to other accounts.

Mr. LAZIO. Without the knowledge of the bank contemporaneous?

Mr. RENYI. Contemporaneous. What is done is clearly a due diligence as it relates to who we are giving that service, offering that service to, so that there is a criteria that we use providing for whether that service is, in fact, appropriate for that individual or that corporation. Once that is taken care of, once we have satisfied ourselves, then that is done outside the bank without necessarily Bank of New York personnel intervention. There is oversight as we see the volumes, and as we said, we are instituting systems which will then have an oversight of those accounts to determine whether, based on certain parameters, certain criteria, that will trigger a specific oversight for that account.

Mr. LAZIO. So there is sort of an historical review that occurs on accounts, whether it is wire transfer accounts?

Mr. RENYI. That is correct.

Mr. LAZIO. And could you just sort of describe briefly for me, if it is your own knowledge, what the due diligence principles might be for such an account?

Mr. RENYI. Knowing what business the individual is conducting, the volumes, the amounts of, the volumes that that individual would, in fact, be utilizing the service for.

Mr. LAZIO. That request would be up front.

Mr. RENYI. That would be up front before the installation is made.

Mr. LAZIO. Does a bank require documentation up front as well?

Mr. RENYI. Certainly all those reports would be noted, the documentation in terms of certificates of incorporation, the legality of that.

Mr. LAZIO. Might you ask for documentation establishing whether a corporation or the entity is properly licensed in a particular State?

Mr. RENYI. If required, if we know that a license is required, then we would request that.

Mr. LAZIO. And is there a system, internal system, in check?

Mr. RENYI. Again, there is tremendous reliance on the individual and the relationship manager who was initiating that relationship to deal with that.

Mr. LAZIO. Now, this is an account, Torfinex?

Mr. RENYI. Yes.

Mr. LAZIO. Do you know if the bank followed that type of protocol on that case?

Mr. RENYI. Well, that is certainly part of the investigations that we are going through right now. So I am really not sure I am at liberty to talk specifically about that particular account that is subject to investigation.

Mr. LAZIO. Let me ask you this last question if I can, because this is a question that was raised yesterday involving Bruce Rappaport, who has a very interesting background, and I am just wondering if you can tell me what the present and historical relationship of Mr. Rappaport might be with the Bank of New York; and if I could briefly follow on to that, if there has been a relationship. To the best of your knowledge, has there been any attempt by Mr. Rappaport to influence the hiring and placement of Bank of New York employees?

Mr. RENYI. Let me address the latter question first in that there has been no evidence, no instance of influence that Mr. Rappaport has had over not only the bank hiring people, but also business transactions.

Mr. LAZIO. Could you answer the first question?

Mr. RENYI. Our initial relationship with Mr. Rappaport was as he was a substantial owner of bank shares quite a few years ago. It is now, we believe, less than 1.3 percent, possibly lower in terms of relationship. At this juncture our principal relationship with Mr. Rappaport is as a shared owner of a bank in Switzerland where we have a 28 percent interest. He has the remainder.

Mr. LAZIO. What is the name of that bank?

Mr. RENYI. BNY Inter-Maritime Bank.

Mr. LAZIO. Thank you very much.

Chairman LEACH. Mr. Barr.

Mr. BARR. Thank you, Mr. Chairman.

Mr. Renyi, according to reports, and I think these figures have been gone into earlier, upward of $7.5 billion may have flowed through nine suspicious accounts at the Bank of New York over a three-year period beginning in 1996. Let us assume on the conservative side that it is $7.5 billion and not more than that. How much would the bank have earned in various commissions, points, interest income of any sort for that $7.5 billion flowing through its accounts?

Mr. RENYI. We would have—the fees, the gross fees associated with that would probably be about $500,000 per annum.

Mr. LAZIO. What about interest on any of that money that was parked for any length of time?

Mr. RENYI. To the best of my understanding is that this was not an interest-bearing account.

Mr. BARR. So $7.5 billion would have resulted only in one-half-a-million dollars total?

Mr. RENYI. Of gross revenue, yes, sir.

Mr. LAZIO. Per year.

Mr. RENYI. Per year, out of a total of fee revenues. This would be fee revenues, Congressman, and last year our fee revenues was approximately $2.5 billion. It is a relatively modest account.

Mr. BARR. I am sorry, what?

Mr. RENYI. Relatively modest account, $500,000 in fees against a total fee revenue of the bank of about $2.5 billion.

Mr. BARR. That is not inconsequential certainly.

Mr. RENYI. It is not inconsequential in its absolute terms.

Mr. BARR. Has there been any discussion at all with any Federal officials of immunity for the bank, any agreement not to prosecute any potential cases here for either committing illegal acts or failing to take steps to prevent illegal acts, such as failure to file SARs?

Mr. RENYI. I am not aware of any immunity offer to the Bank of New York in its investigation.

Mr. BARR. OK. Apparently, at least two individuals, Lucy Edwards and Natasha Kokolovsky, have been terminated by the bank; is that correct?

Mr. RENYI. One of them has, Lucy Edwards, and Natasha Kokolovsky——

Mr. BARR. Has been suspended?

Mr. RENYI. Is on a paid leave of absence.

Mr. BARR. Has she been suspended? Was that at her request, or did the bank take that action?

Mr. RENYI. The bank took that action when the accounts in question were closed and the investigators asked that we secure files, and we felt it was in everyone's best interest that that take place.
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