Riggs Bank fined for not reporting suspect accounts

Riggs Bank pleaded guilty to failing to report suspicious financial transactions, including more than $10 million deposited by former Chilean dictator Augusto Pinochet. The judge said a $16 million fine agreed to by prosecutors may not be enough.

U.S. District Judge Ricardo Urbina in Washington declined to accept today’s plea agreement with prosecutors for now, questioning whether the fine “is just a business expense” for Riggs that wouldn’t even cover the profits it made on the suspect accounts. He ordered an independent investigation by probation officers to determine whether the penalty is sufficient and scheduled sentencing for March 29.

“This is not a cost-of-business fine,” Mark Hulkower, a lawyer for the bank, told Urbina. The $16 million is more than Riggs’s profits, he said. The bank is a unit of Riggs National Corp.

The guilty plea, after a yearlong money laundering probe by U.S. prosecutors, may clear the way for the sale of Riggs to Pittsburgh, Pennsylvania-based PNC Financial Services Group if Urbina approves the plea agreement. Riggs has been a Washington institution for 170 years, the bank of choice for many foreign embassies and scores of government officials.

Riggs “has attempted to fully cooperate with the investigation and deeply regrets the conduct,” Hulkower said. The plea agreement also would place Riggs on probation for five years, or until it’s acquired by PNC.

Pinochet deposits

Between 1994 and 2002, Pinochet deposited more than $10 million into Riggs bank, according to court papers in the case. “Riggs Bank failed to conduct sufficient due diligence as to the source of the funds,” the papers said. The bank failed to report transactions it knew or should have known were suspicious, the government said.

The bank, which had been led by former Vice Chairman Joe L. Allbritton and his family, also admitted it failed to adequately report transactions that helped rulers of Equatorial Guinea, including President Teodoro Obiang Nguema, who came to power in a military coup in 1979.

Between 1996 and 2004, the bank opened more than 30 accounts for his government and top officials and helped Obiang and his sons set up an offshore shell corporation, court papers said. The bank accounts and loans for Equatorial Guinea totaled $700 million by 2003, the papers said.

Obiang retained power in elections the U.S. government and international observers considered “tainted by fraud and intimidation,” the papers said. “Public corruption had long been considered a significant problem.”

Continuing probe

The Justice Department is continuing to investigate the role played by former executives and officers of the bank in alleged money laundering, the New York Times reported today, citing a person familiar with the case.

The Office of the Comptroller of the Currency said in May that Riggs had to pay a $25 million penalty for not disclosing suspicious banking activities. The bank “did not detect or investigate suspicious transactions and had not filed suspicious activity reports as required under the law,” said the agency that regulates nationally chartered banks.

In April, the bank said Allbritton would leave the board and the company would sell most of its international businesses. Allbritton’s family controlled the bank since 1981. Its board members include Jack Valenti, former head of the Motion Picture Association of America.

A report by Democratic staff members of the Senate Permanent Subcommittee on Investigations found that Riggs helped Pinochet, former president of Chile, evade legal proceedings related to his accounts.

‘A blind eye’

The report, released in July, also said Riggs managed accounts for officials in Equatorial Guinea “with little or no attention” to money-laundering rules, turning “a blind eye to evidence suggesting the bank was handling the proceeds of foreign corruption.”

Riggs, with roots dating back to 1836, has held accounts for at least 21 first families and presidents, including Abraham Lincoln and Dwight Eisenhower, according to its Web site.

PNC, Pennsylvania’s biggest lender, agreed in July to buy Riggs for $779 million to gain a foothold in the Washington market. As of June 30, Riggs had about 9 percent of the deposits in the District of Columbia, trailing Wachovia Corp. SunTrust Banks Inc., Bank of America Corp. and Citigroup Inc., according to the Federal Deposit Insurance Corp.

Gerard Cassidy, an analyst at RBC Capital Markets who rates PNC shares a “hold,” said the guilty plea may discourage customers from banking there, lower the offering price for Riggs. “This lowers the likelihood of the deal going through at the originally negotiated price,” he said.

Just a year earlier, Riggs controlled 23 percent of Washington’s deposits, FDIC data show. By purchasing Riggs, PNC would gain about 50 consumer offices in the area of the nation’s capital., January 27, 2005

Categories: Corruption, Odious Debts

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