Permanent Subcommittee on Investigations

By Linda J. Gustitus, Chief Counsel and Staff Director; Elise J. Bean, Deputy Chief Counsel; and Robert L. Roach, Counsel and Chief Investigator

February 5, 2001

U.S. banks, through the correspondent accounts they provide to foreign banks, have become conduits for dirty money flowing into the American financial system and have, as a result, facilitated illicit enterprises, including drug trafficking and financial frauds. Correspondent banking occurs when one bank provides services to another bank to move funds, exchange currencies, or carry out other financial transactions. Correspondent accounts in U.S. banks give the owners and clients of poorly regulated, poorly managed, sometimes corrupt, foreign banks with weak or no anti-money laundering controls direct access to the U.S. financial system and the freedom to move money within the United States and around the world. This report summarizes a year-long investigation by the Minority Staff of the U.S. Senate Permanent Subcommittee on Investigations, under the leadership of Ranking Democrat Senator Carl Levin, into correspondent banking and its use as a tool for laundering money. It is the second of two reports compiled by the Minority Staff at Senator Levin’s direction on the U.S. banking system’s vulnerabilities to money laundering. The first report, released in November 1999, resulted in Subcommittee hearings on the money laundering vulnerabilities in the private banking activities of U.S. banks.

In 1998 Harris filed a claim against an investigative journalist named David Marchant for reporting these facts. Marc M. Harris v. David E. Marchant (United States District Court for the Southern District of Florida, Miami Division, Case No. 98-761-CIV-MOORE), Final Judgment (August 10, 1999)….

… In its conclusion in support of Marchant, the court found:

The court’s opinion listed some of the allegations:

“. . . 12. Marchant learned from Shockey [John Shockey, former investigator for the U.S. Office of the Comptroller of the Currency] that Marc M. Harris (“Harris”), the founder and de facto head of the Harris Organization, had operated several offshore shell banks in Montserrat in the 1980s. These banks were subsequently closed down in 1988 by British banking authorities for conducting “illegal and fraudulent activities.” According to Shockey, these banks exhibited numerous financial and fiduciary improprieties. One of the banks, the Fidelity Overseas Bank, took fees from clients even though it never performed any services for them. Another bank, the First City Bank, doctored its financial statements. Finally, a third bank, the Allied Reserve Bank, was issued cease-and-desist orders for operating in the United States without authorization. . .

“. . . 33. On March 31, 1998, Marchant published an article in Offshore Alert titled “We Expose The Harris Organization’s Multi-Million Dollar Ponzi Scheme.

“34. This article made a number for factual allegations, which substantively accused The Harris Organization of defrauding its clients and misappropriating clients’ funds. These allegations specifically at issue are:

a. That The Harris Organization operates as a “Ponzi” scheme.

b. That The Harris Organization was insolvent by $25 million.

c. That Harris used clients funds to invest in the Infra-fit [a Chilean bicycle manufacturer] venture.

d. That The Harris Organization inflated the land value of the LARE [Latin American Real Estate Fund, a Harris-affiliate entity] investment in their financial statements...

g. That The Harris Organization might be laundering the proceeds of crime.

h. That The Harris Organization had issued $20 million of worthless preference shares.”

In its conclusion in support of Marchant, the court found:

“. . . 8. From the time he published the initial article to the present, Marchant had evidence which provided persuasive support for the truth of each of the allegations at issue. He spoke with numerous inside sources, including Dilley (a consultant who served in a position equivalent to the CEO of The Harris Organization), and outside sources such as Shockey, who appeared credible and knowledgeable about Harris, The Harris Organization, and the financial situation within The Organization. Marchant was privy to internal financial and management documentation which supported the information learned from his sources.”

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