Riggs Bank, which for years billed itself as “the most important bank in the most important city in the world,” now finds itself the most scrutinized bank in the most unforgiving city in the world.

The Senate’s Permanent Subcommittee on Investigations has concluded that Riggs executives and bank regulators, even after the events of Sept. 11, 2001, failed to monitor suspicious financial transactions involving hundreds of millions of dollars.

A report it released last week in connection with a hearing on the bank’s operations gives a detailed picture of events that snowballed into a financial scandal and appear to have ended the venerable bank’s independence. On Friday, the parent of Riggs announced that PNC Financial Services of Pittsburgh had agreed to buy it for $779 million. Still, Riggs, and those who ran it, face more regulatory, Congressional and law enforcement investigations.

The controversy that has shaken Riggs has sent tremors through the industry. Regulators acknowledge that, despite the impetus provided by the terrorist attacks, there are holes in their ability to analyze and prevent possible abuses of the nation’s financial system.

To seal those holes, the federal government is considering overhauling the way it polices the activities of banks. Such changes might involve investing a single agency with greater authority to enforce laws against money laundering and terrorist financing, according to regulators and Congressional leaders. At present, a hodgepodge of agencies that do not share information or coordinate activities effectively are charged with overseeing banks.

“9/11 changed my world and changed our world in the regulatory agencies, just like it changed the world of every American,” said Daniel P. Stipano, deputy chief counsel at the Office of the Comptroller of the Currency, Riggs’s lead regulator. “What happened with Riggs is unacceptable. It cannot be repeated.”

In the hearing, Senator Norm Coleman, a Minnesota Republican who is chairman of the investigative subcommittee, pointed out Riggs executives’ own responsibility for preventing abuses. “Freedom always implies a corresponding responsibility to respect the rules that society imposes on the market,” he said. “Top officials did not always justify their freedom from aggressive oversight with a willingness to respect and implement their social duties.”

The scrutiny of the bank involves accounts it held for Gen. Augusto Pinochet, the former Chilean dictator, and for the Saudi Arabian Embassy. It comes at a time when several new books and the documentary “Fahrenheit 9/11” have put a spotlight on the kingdom’s ties to the Bush administration. The sources of about $700 million in cash and investment accounts at Riggs Bank owned by the African nation of Equatorial Guinea or some of its leaders are also being examined, at a time when American companies have been courting that oil-rich nation to secure petroleum sources outside the Middle East.

The Chilean Congress, reacting to disclosures about General Pinochet’s accounts at Riggs, said that on Tuesday it would consider establishing a commission to determine if the accounts contained looted government money. In August, the Chilean Supreme Court is expected to rule on whether General Pinochet, who is 88 and said to be in poor health, must stand trial on charges stemming from a wave of murders and disappearances that swept across the southern cone of South America in the 1970’s and 1980’s.

Riggs and its senior executives have for months denied any wrongdoing, although one former executive is the subject of a grand jury inquiry. Riggs and its executives now face the possibility of criminal charges. Spokesmen for the Saudi Arabian Embassy have also denied wrongdoing; the Equatorial Guinean Embassy has repeatedly declined to comment. People close to General Pinochet, including his son, have told news services in Chile that he has never had secret bank accounts and that money in the Riggs accounts may be donations from supporters sponsoring his legal defense.

Nonetheless, the actions of everyone associated with the Riggs scandal have set in motion a reappraisal of the guardians of the American financial system.

“Despite all the money laundering laws that Congress has passed, the structural defects are so bad that there’s no one implementing them,” said Charles Intriago, publisher of Money Laundering Alert, a newsletter. The United States is “on the brink of trying to fix a financial regulatory system that’s in a state of great disrepair.”

A dictator’s cash

At a meeting with regulators at the headquarters of Riggs Bank two years ago, Barbara B. Allbritton, a Riggs board member, was offended that the bank had to end its relationship with a valued client, General Pinochet, according to the report and testimony at the Senate hearing.

Mrs. Allbritton, who had a board seat by virtue of her marriage to Joe L. Allbritton, Riggs’s former chief executive and single largest shareholder, did not mince her words.

“Why did the Pinochet accounts have to be closed?” she asked, according to testimony in the Senate hearing on Thursday by Lester J. Miller, a federal regulator who monitored Riggs accounts and attended the meeting with her.

Bank regulators, who stumbled across the Pinochet funds during a Riggs review in early 2002, could have given Mrs. Allbritton compelling reasons for closing the accounts. Even at a time when the general was detained on charges of human rights abuses and his assets had been frozen by court orders, Riggs helped him disguise millions of dollars in suspect funds and wire the money worldwide, the Senate report says.

“In 1994, top Riggs officials traveled to Chile and asked General Pinochet, a notorious military leader accused of involvement with death squads, corruption, arms sales and drug trafficking, if he would like to open an account at Riggs Bank here in Washington,” Senator Carl Levin, a Michigan Democrat, observed in the hearing. “Mr. Pinochet said yes.”

Mr. Allbritton, who secured a controlling stake in Riggs in 1981, coveted the bank’s international cachet and made regular business trips abroad, including to Chile. Raymond M. Lund, a former Riggs executive who opened General Pinochet’s accounts at the bank in the mid-1990’s, said in Senate testimony that Mr. Allbritton had a “professional business relationship” with the dictator. Carol Thompson, who oversaw Riggs’s Latin American business, told Senate investigators that she occasionally briefed Mr. Allbritton directly on General Pinochet’s finances. The Allbrittons have not responded to interview requests.

While General Pinochet’s accounts at Riggs may have gone unnoticed by United States regulators until 2002, they were not a secret to the rest of the world. The Associated Press wrote about them as early as 1999, when judicial proceedings began in Spain against General Pinochet. On Dec. 10, 2000, The Observer, a British paper, also mentioned them in connection with possible drug trafficking. Senate records show that the Riggs accounts held $4 million to $8 million from 1994 to 2002.

When regulators asked Riggs in 2000 for a list of its accounts controlled by political figures, the roster provided by the bank did not include General Pinochet’s name. Shortly after The Observer article was published, the bank – in a move that it acknowledged last week was improper – changed the name on accounts of the general and his wife from “Augusto Pinochet Ugarte & Lucia Hiriart de Pinochet” to “L. Hiriart &/or A. Ugarte,” ensuring that searches for Riggs accounts named “Pinochet” would draw a blank.

General Pinochet was arrested in Chile in early 2001, causing Riggs officers and its board to review whether it was proper to maintain his accounts. The accounts remained open, and the general’s arrest was later overshadowed in the news by the terrorist attacks in the United States.

Regulators began vetting American banks more thoroughly after Sept. 11. During a review of Riggs’s international operations in April 2002, examiners with the Comptroller of the Currency came across the Pinochet accounts. Overtaxed to complete the international review and a subsequent review of terrorist financing, regulators notified Riggs that they would return in June for a closer look.

On April 8, 2002, Riggs sent $500,000 in cashiers’ checks to the general. Later analyses by Senate investigators indicated he cashed them to pay personal expenses. Sometime between the spring and summer of 2002, according to the Senate report and testimony last week, Riggs tried to withhold information about the Pinochet accounts from regulators and then, rather than freeze the accounts as is customary, closed them and returned the money to General Pinochet.

Although Mr. Lund said last week that Riggs executives had documented the source of the general’s wealth, Senate investigators say the bank never made any sincere effort to do so, as required by law. Moreover, regulators never considered fining Riggs in 2002 or referring the Pinochet accounts to law enforcement officials, according to Senate records and testimony. The comptroller’s lead Riggs examiner at the time, R. Ashley Lee, took an executive position at Riggs later that year.

Mr. Lee said last week that he never made any effort to water down regulatory oversight of Riggs. Senator Levin said that his committee’s evidence suggested otherwise and that he planned to ask the Justice Department to investigate.

The Saudi funds

By October 2002, when Mrs. Allbritton voiced her resentment to regulators about losing General Pinochet’s business, another problem was about to engulf Riggs. In November, Newsweek magazine reported that the Federal Bureau of Investigation was examining Saudi Arabian Embassy accounts at the bank in connection with the Sept. 11 attacks.

The F.B.I. investigation, focusing on accounts controlled by the wife of Prince Bandar bin Sultan, Saudi Arabia’s longtime ambassador to the United States, was news to regulators. Once again, as the Senate report showed, outside forces were making them examine Riggs more closely and Riggs executives were proving to be, at best, indifferent gatekeepers.

Although the F.B.I. told The New York Times in late 2002 that it had no evidence that money from Prince Bandar’s wife went to the hijackers involved in the Sept. 11 attacks – a conclusion that the 9/11 commission also reached last month – news reports prompted regulators to scrutinize Prince Bandar’s transactions at Riggs. The F.B.I. briefed them on the Saudi funds in December 2002, and bank regulators told Riggs a month later that they would examine the accounts.

What regulators expected to be a one-month examination lasted five months as regulators uncovered improprieties in some of 150 Saudi accounts at Riggs. Under law, banks are required to vet the background of their customers, report outsized movements of cash and alert regulators when any banking activities are suspicious. Regulators and members of Congress said Riggs frequently failed to carry out these duties, and the Saudi accounts were no exception.

Last week’s Senate report said that the Saudi accounts were “equally troubling” as other accounts at Riggs that have come under scrutiny, but noted that a more thorough Congressional examination of the Saudi accounts was under way at the Senate Governmental Affairs Committee.

Federal investigators and people close to Riggs said regulators had concluded that Riggs inadequately monitored the destinations and uses of large amounts of cash, often more than $1 million at a time, in the Saudi accounts. Many of these transactions involved Prince Bandar personally, these people said.

A member of Saudi Arabia’s diplomatic corps said in a recent interview that the prince often made up large shortfalls in the embassy’s budget out of his own pocket, which could account for some of the heavy cash movements through the Riggs accounts. Spokesmen for the Saudi embassy have said that the F.B.I. told the embassy that there were no concerns that its Riggs accounts involved money laundering or terrorist financing.

Cease and desist

Problems with the Saudi accounts led regulators to issue a rare and public cease-and-desist order against Riggs early last year, requiring it to clean up its practices or face further penalties. But unexplained transactions continued to flow through the Saudi accounts late last year, and Prince Bandar refused to provide information about them to Riggs, according to people with direct knowledge of the discussions.

March, the same month regulators told the bank it would receive a heavy fine, Riggs said it had closed all Saudi accounts. Minutes of a Riggs meeting on April 7 noted that Prince Bandar had recently requested “$2 million in cash for traveling expenses,” a request the bank denied.

“Prince Bandar then asked that Riggs wire $2 million to another bank, which was done,” the minutes said, adding that the bank notified regulators about the transaction. In May, regulators fined Riggs $25 million for failing to adequately monitor suspicious activities, the largest such penalty ever imposed on an American bank.

Suitcases of cash

When regulators began scouring the Saudi accounts in January 2003, yet another media report raised questions about the bank’s behavior. The Los Angeles Times reported suspicious activities in Riggs accounts controlled by the government of Equatorial Guinea, and a questionable relationship between a Riggs executive and that country’s leader, sparking another regulatory examination of the bank’s intersection with a dictator.

Simon Kareri, a Kenyan who oversaw the Equatorial Guinean money at Riggs, liked to serve his bank’s clients the old-fashioned way, according to the Senate report: he carried large amounts of money around in suitcases.

The report said that Mr. Kareri, who is the subject of a grand jury investigation, packed up to $3 million in shrink-wrapped bills obtained from Equatorial Guinean leaders into suitcases and walked them through Riggs’s front door. Riggs, according to the Senate report, never made any effort to inquire about the source of the money, as it is required to do by law, even though the money was openly tabulated by high-speed counting machines inside the bank.

Three investigators with direct knowledge of the transactions said officials were looking into accusations that Mr. Kareri took bank money for his own use. Riggs fired him earlier this year. His lawyer has declined to comment. Mr. Kareri asserted his right against self-incrimination and declined to answer questions during last week’s Senate hearing. But Mr. Kareri was not the only one at Riggs wooing the Equatorial Guineans.

Oil money from Africa

Although the country’s dictator, Teodoro Obiang Nguema Mbasago, had a long record of amply documented human rights abuses, he also presided over a wildly lucrative oil boom that Western companies coveted. Riggs began dealing with him in 1995, and by this year the country had become the bank’s largest client, with accounts of $700 million. In turn, Mr. Obiang became a lunch guest at Riggs.

Shortly after one lunch, on May 17, 2001, Robert L. Allbritton, who is Mr. Allbritton’s son and chief executive of Riggs National Corporation; the Riggs Bank president and chief executive, Lawrence I. Hebert; and Mr. Kareri all signed a letter to Mr. Obiang. The letter said that Riggs could help Mr. Obiang “reinforce your reputation for prudent leadership” and asked him “how best we can serve you.”

According to federal investigators and the Senate report, that service mirrored what the bank provided General Pinochet: massive, no-questions-asked transfers of cash into offshore shell corporations that Riggs created.

Some of the millions of dollars that went into Mr. Obiang’s personal accounts came from oil funds established to benefit Equatorial Guineans, according to the Senate report. Last week, Senator Levin noted charges of corruption and abuses against Mr. Obiang and berated Riggs’s relationship with the dictator as “abominable.”

Mr. Hebert had a different view.

“It’s prudent on any bank’s part to try to meet the people. They had a lot of money in the account,” he testified. “I wanted to hear this fellow talk about his country, talk about what he was trying to do with all this wealth.”

A number of American oil companies, especially Exxon Mobil, Amerada Hess and Marathon Oil, had numerous outside business ventures and other financial relationships with Mr. Obiang and his government, in addition to the companies’ oil pursuits in the country. Executives from the companies testified last week. Senate records of Riggs accounts show large payments by American oil companies into accounts of Equatorial Guinean officials and their relatives, sometimes in increments as high as $250,000.

Oil industry executives at last week’s hearings said that they had gone to great lengths to have honest business relationships in Equatorial Guinea and had not knowingly engaged in corrupt practices.

By the time news reports spurred bank regulators in early 2003 to examine Riggs’s involvement with the country, regulators were already consumed by their examination of the Saudi accounts. Nearly a year would pass before they were able to investigate the Equatorial Guinean accounts in any detail. As late as last December, according to the Senate report, Joe L. Allbritton continued to tell regulators that “the bank had no intention of closing the E.G. accounts.”

Matters soon escalated beyond Mr. Allbritton’s control. Shortly after he dug in his heels, the accounts were closed. Not long after that, Riggs was fined and then, last week, was sold.

Timothy L. O’Brien, New York Times, July 19, 2004