In Al Gosaibi saga, a punchline with the joke on creditors

Eric Lewis can tell a good gag. A partner with the New York firm Lewis Baach, he knows it's all about timing. And he uses that skill to give a global perspective on the Al Gosaibi saga.

Eric Lewis, a partner with the New York firm Lewis Baach, is an attorney for the Al Gosaibi family of Saudi Arabia. Amy Leang / The National

Eric Lewis can tell a good gag. A partner with the New York firm Lewis Baach, he knows it's all about timing.

Mr Lewis has been working for the Al Gosaibi family of Saudi Arabia ever since their world collapsed in a maelstrom of fraud allegations, international legal actions and billions of dollars worth of debt in May 2009.

The family, one of the kingdom's most venerable merchant dynasties, pointed the finger at (now) estranged family member Maan Al Sanea, whom they accused of stealing the family fortune and running up the mind-boggling debts.

Mr Al Sanea denies the allegations and has taken legal action on three continents to protect his reputation

All that is history, but the affair is still having big repercussions in Saudi financial circles, and among the 110-odd banks still owed billions.

Mr Lewis was in Dubai recently, addressing a conference of fraud experts (lawyers, accountants and investigators) in the emirate, and he used his speech to put the Al Gosaibi affair into global perspective. But there was a sting in the tale too.

"Is business culture in the Middle East different?" he asked. The answer was yes, and no.

Yes to the extent that there are different family and cultural practices compared with the West, more overlap of ownership and management, and historically less reliance on audited standards. This all adds up to the practice of "name lending", which has been seriously tarnished by the Al Gosaibi scandal and has virtually disappeared in the kingdom, if not elsewhere in the Gulf.

But on the other hand, business is business everywhere in the world, said Mr Lewis, and the Middle East is no different. The normal criteria of commercial banking must be applied: due diligence on borrowers must still be undertaken, and security provided, whatever the borrowers' names; "know your customer", whether through personal relationship or detailed study of the accounts, is an imperative.

So what went wrong with the Al Gosaibis? Mr Lewis asked. The banks failed to get to know the family and relied instead on relationships with expatriate employees and with Mr Al Sanea. Above all, the banks ignored their own policy on lending and turned a blind eye to transactions that made no sense.

It was at this point that the stand-up in Mr Lewis took over. He proposed an "alternative outcome" and bid the audience to "imagine where we would be today if the banks that received this email had undertaken due diligence to protect their interests".

He then flashed up on PowerPoint an email dated 2001 signed by "The Whistleblower" - apparently an expatriate executive at The Money Exchange, the AlGosaibi unit at the centre of the scandal. He says the email was sent to about 25 of the biggest AlGosaibi creditors, warning them of financial irregularities at the companies and telling them to do due diligence before it was too late.

The email was strongly worded: "the financials are a joke, completely fabricated … the crunch is coming". It was designed to ring alarm bells among the creditors.

But the banks, said Mr Lewis gravely as he wound up his tour de force, ignored the warnings.

It was the first time the "Whistleblower" email had been revealed, and even seasoned observers of the long-running saga took a sharp breath when Mr Lewis pulled the email from his hat. There are apparently a couple of dozen others from the same source, all warning bankers that their loans to The Money Exchange were at risk. As far as we know, none of the creditors followed up the email, said Mr Lewis.

You can understand his logic. If the international banks now seeking repayment of billions by the Al Gosaibis and Mr Al Sanea were warned all that time ago that their loans were at risk and did nothing about it, their moves now to seek repayment of the sums are undermined.

No doubt that it, and other "Whistleblower" emails, will feature as evidence in the legal actions in New York, London and the Cayman Islands.

twitter: Follow our breaking business news and retweet to your followers. Follow us