Regulators Fine Riggs $25 Million

[R. A. Hettinga]

<http://www.nytimes.com/2004/05/14/business/14bank.html?th=&pagewanted=print&position=>

The New York Times

May 14, 2004

Regulators Fine Riggs $25 Million
By TIMOTHY L. O'BRIEN

ederal regulators fined the  Riggs National Corporation, the parent company
of Riggs Bank, $25 million yesterday for failing to report suspicious
activity, the largest penalty ever assessed against a domestic bank in
connection with money laundering.

The fine stems from Riggs's failure over at least the last two years to
actively monitor suspect financial transfers through Saudi Arabian and
Equatorial Guinean accounts held by the bank. The accounts are still being
scrutinized as possible conduits for terrorist funds or for the proceeds of
graft.

Riggs, based in Washington, "did not collect or maintain sufficient
information about its foreign private banking customers," regulators noted
in a consent order signed by the bank. "As a result, the bank failed to
identify approximately one-third of the accounts related to the country of
Saudi Arabia and an unacceptably high number of accounts related to the
country of Equatorial Guinea."

"The bank omitted disclosure of several bank accounts in response to
requests" from regulators, the consent order also noted.

A spokesman for the Saudi Arabian Embassy has denied any involvement by
Saudi officials in terrorist financing activities through Riggs. The
Equatorial Guinean Embassy has not returned calls seeking comment.

It is possible that additional fines may be levied against individual
executives or directors at Riggs, as well as two former directors,
according to two people briefed on the matter. The moves are the latest
troubles for a storied institution that manages bank accounts for most of
Washington's foreign embassies as well as American embassies and consulates
overseas.

Riggs agreed to pay the penalty without admitting or denying any
wrongdoing, according to the consent order. A spokesman said last night
that the regulatory environment since the Sept. 11, 2001, attacks has
required all banks to act much more diligently in monitoring accounts.

Regulators cited the bank for failure to comply with the Bank Secrecy Act,
a law governing anti-money-laundering requirements. "The bank's management
was ineffective in overseeing the bank's day-to-day compliance with the
B.S.A. laws and its regulations, as evidenced by the numerous and
substantial deficiencies in the program," the consent order said.

A severe penalty had been expected against Riggs after it first disclosed
in a securities filing in March that regulators were considering fining the
bank for lax practices in combating money laundering. Federal regulators
and investigators, as well as two Congressional committees, are
investigating the bank's accounts.

"Riggs Bank deserves every penny of this huge fine," said Senator Charles
E. Grassley of Iowa, chairman of the Senate Finance Committee, which is
examining the Riggs accounts. "When banks look the other way, they put our
national security at risk. Whether it's through incompetence, negligence or
greed, they are allowing terrorists to funnel their blood money through the
system."

"This fine is a shot across the bow for the board of directors, who should
have taken more care to find out what was wrong with Riggs and get it
fixed," Mr. Grassley added. "I'm not satisfied they've been held to
account."

The Financial Crimes Enforcement Network, an investigative arm of the
Treasury Department, and the Office of the Comptroller of the Currency, a
regulatory arm of the same agency, each imposed $25 million penalties
against Riggs, but the bank will be allowed to pay them concurrently.

The consent order stated that Riggs failed to report suspect transactions
involving the withdrawal of tens of millions of dollars in cash and
international drafts from accounts controlled by the Saudi Arabian Embassy
and by Saudi Arabian officials. Accounts controlled by Prince Bandar bin
Sultan, Saudi Arabia's ambassador to the United States, have been
scrutinized in the investigation, according to federal investigators
involved in the inquiry.

The consent order also stated that Riggs had similar monitoring lapses
involving the Equatorial Guinean accounts, including "millions of dollars
deposited into a private investment company owned" by an official of that
country. The order also cited "hundreds of thousands of dollars transferred
from an account of the country of Equatorial Guinea to the personal account
of a government official of the country" and more than $1 million
transferred from an Equatorial Guinean account to a private investment
company owned by Simon P. Kareri, a former senior Riggs manager.

Mr. Kareri is the subject of a federal grand jury hearing examining
possible criminal fraud. Mr. Kareri's lawyer has previously declined to
comment on the hearing. He could not be reached for comment yesterday
evening.

Another major banking regulator, the Federal Reserve, is expected to
designate Riggs and one of its Miami banking subsidiaries as being in
"troubled condition," a move that will severely curtail the bank's
autonomy, according to three people briefed on the matter. Among other
things, the designation means that the bank must secure regulatory approval
before naming new executives or directors.

The Comptroller of the Currency already formally designated Riggs as a
troubled institution last month.

Riggs said last month that it planned to exit most of its embassy and
international banking operations. Riggs also indicated in a securities
filing last month that Joe L. Allbritton, its former chief executive and
its biggest shareholder, would not stand for re-election to the board. Mr.
Allbritton, who took control of the bank in 1981, is a vice chairman.

Neither Mr. Allbritton nor Riggs has been charged with wrongdoing by
federal law enforcement officials who are scrutinizing the bank's accounts.


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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
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