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US: Riggs Bank Fined for Not Reporting Suspect Accounts

Riggs Bank pleaded guilty to helping former Chilean dictator Augusto Pinochet and the leaders of oil- rich Equatorial Guinea hide hundreds of millions of dollars. The federal judge questioned whether a $16 million fine agreed to by prosecutors was enough.


by Laurence ArnoldBloomberg
January 27th, 2005

Riggs Bank pleaded guilty to helping former Chilean dictator Augusto Pinochet and the leaders of oil- rich Equatorial Guinea hide hundreds of millions of dollars. The federal judge questioned whether a $16 million fine agreed to by prosecutors was enough.

U.S. District Judge Ricardo Urbina in Washington today asked whether the penalty is ``just a business expense'' that wouldn't even cover the profits Riggs made on the suspect accounts. He scheduled sentencing for March 29 after an ``independent investigation'' by probation officers determines whether the penalty is sufficient for a felony violation of bank-secrecy laws.

``This is not a cost-of-business fine,'' Mark Hulkower, a lawyer for the bank, told Urbina. The fine is more than Riggs's profits from the accounts for Pinochet and Teodoro Obiang Nguema, the president of Equatorial Guinea who seized power in a 1979 coup, Hulkower said. The bank is a unit of Riggs National Corp.

The guilty plea, after a yearlong money laundering probe by prosecutors, may clear the way for the sale of Riggs to Pittsburgh, Pennsylvania-based PNC Financial Services Group if Urbina approves the agreement. PNC, Pennsylvania's biggest lender, agreed in July to buy Riggs for $779 million to gain a foothold in the Washington market.

Riggs's admission `is very serious'' and ``lowers the likelihood of the deal going through at the originally negotiated price,'' said Gerard Cassidy, an analyst at RBC Capital Markets who rates PNC shares a ``hold.'' PNC ``may restructure the terms of the agreement for it to go ahead.''

Brian Goerke, a PNC spokesman, declined to comment.

A Washington Institution

Riggs has been a Washington institution for 170 years. It helped finance the U.S. government's $7.2 million purchase of Alaska from Russia in 1867 and was the bank of choice for many foreign embassies and scores of diplomats, a business Riggs disbanded as part of its agreement to plead guilty.

Riggs admitted ``systemic institutional failure to monitor and report to government authorities'' suspicious financial transactions by Pinochet and the dictatorial rulers of Equatorial Guinea, U.S. Attorney Kenneth Wainstein told reporters at a news conference.

``Despite repeated specific warnings from federal bank regulators, Riggs aggressively cultivated the Pinochet and Equatorial Guinea accounts and profited from their business,'' he said. ```In the case of Equatorial Guinea, hundreds of millions of dollars flowed in and out of the accounts under what were often very suspicious circumstances.''

Wainstein declined to say whether any bank executives knew about the illegal conduct. ``We are going to continue to look at all the angles,'' he said.

Pledging Cooperation

Riggs ``has attempted to fully cooperate with the investigation and deeply regrets the conduct,'' Hulkower said. The plea deal also would place Riggs on probation for five years, requiring it to adopt safeguards against money laundering. The probation would end if it's acquired by PNC.

Riggs shares rose 44 cents to $22.44 as of 4 p.m. New York time in trading on the Nasdaq Stock Market. PNC shares fell 17 cents to $52.99 in New York Stock Exchange composite trading.

Between 1994 and 2002, Pinochet deposited more than $10 million into Riggs Bank, which helped the former Chilean dictator set up two off-shore shell companies to hide assets, according to court papers in the case.

Suspicious Transactions

``Riggs affirmatively helped Pinochet conduct highly suspicious transactions when he was under house arrest in Chile,'' Wainstein said. The bank also removed his name from the account ``to shield Pinochet'' from foreign governments seeking to attach his assets, he said. Bank employees carried cashiers checks to Chile to conceal transactions, he said.

Also, Riggs used aliases such as ``Red Fox-Chile'' or ``the Washington client'' to avoid referring to Pinochet by name ``even in routine internal communication,'' court papers said.

The bank, which had been led by former Vice Chairman Joe L. Allbritton and his family, also admitted it failed to report suspicious transactions that helped Obiang and other rulers of Equatorial Guinea, according to court papers.

Between 1996 and 2004, the bank opened more than 30 accounts for Obiang's government and top officials and helped the president 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.

`Tainted by Fraud'

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.''

Over eight years, Riggs wired $24 million to an account in a Spanish bank without investigating who would actually receive the money, Wainstein said. The money had been kept in a Riggs account for government oil royalties.

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.

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.

Helping Pinochet

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.

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.

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.

``This criminal conviction may prevent certain customers from coming to the Riggs franchise, and if that's the case, this deal needs to be revalued,'' Cassidy said. ``PNC shareholders will expect that.'' 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.





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