Riggs May Be Fined Over Bank Secrecy Act
Officials Reviewing Bank's Diplomatic Connections, Money-Laundering Enforcement

By Kathleen Day and Terence O'Hara
Washington Post Staff Writers
Friday, April 2, 2004

Federal banking and law enforcement authorities may fine Riggs Bank N.A., as well as officers and directors of the Washington institution, for allegedly failing to live up to a July agreement to improve its anti-money-laundering procedures, according to securities filings.

An investigation, which focused on Riggs's longtime relationships with the diplomatic community in Washington, led the bank to cut ties to one of its largest customers -- the Saudi Arabian Embassy and that country's ambassador, Prince Bandar bin Sultan -- and the tiny African country of Equatorial Guinea and its dictator.

In recent filings with the Securities and Exchange Commission, Riggs said the Office of the Comptroller of the Currency (OCC) and the Financial Crimes Enforcement Network told bank officials on March 2 that regulators were considering fining the bank for failing to comply with the agreement Riggs signed last summer to adhere to the Bank Secrecy Act. That law requires banks to report any deposit or withdrawal of more than $10,000, or any other suspicious activity, to regulators.

Riggs said the OCC and law enforcement authorities are "reviewing the involvement of employees, officers, and directors."

Mark Hendrix, spokesman for Riggs, said the bank has taken the matter seriously and worked closely with regulators to improve its compliance with the Bank Secrecy Act.

When asked whether the bank or its directors might face civil penalties, Hendrix said: "Riggs Bank, its board of directors and its employees would never knowingly violate . . . regulatory laws."

"Riggs has never acted willfully in violation of the BSA or other laws," Hendrix said in a statement. "We have taken and continue to take proactive and decisive steps to reduce risk."

Last month, Riggs decided to terminate its relationship with the Saudi Arabian Embassy, the ambassador and his family, a knowledgeable source who spoke on condition of anonymity said. The bank is in the process of closing those accounts, which are worth tens of millions of dollars, because of a series of suspicious deposits and withdrawals since January. The Wall Street Journal reported Thursday that the Saudi relationship, one of Riggs's oldest and biggest accounts, had ended.

In late February, according to a Riggs securities filing, the bank informed a large customer it was "terminating its depositary relationship." A source who has been briefed on the matter and spoke on the condition of anonymity said the relationship was with officials of Equatorial Guinea, a destitute but oil-rich sub-Saharan African country, including its president, Teodoro Obiang Nguema. Human rights and anti-corruption groups have charged Obiang with profiting from his country's vast oil wealth while Equatorial Guinea's citizens remain among the poorest in the world. Equatorial Guinea officials could not be reached for comment.

In a written statement, Exxon Mobil Corp. said the oil company's affiliate in Equatorial Guinea has made "payments in U.S. dollars to an account of the General Treasury of Equatorial Guinea at the Riggs Bank in Washington, D.C. for required tax and legal obligations in that country. These payments are made as required under our contracts with the government of Equatorial Guinea."

When Riggs terminated the account, Equatorial Guinea had about $360 million, or 8 percent of its total deposits, at the bank. Though the amount was unusually large, Riggs said it had sufficient cash to cover the withdrawal.

Hendrix said he could not comment on any depositor relationship.

Scrutiny of Riggs's international business began with an FBI investigation initiated in 2002 of charitable contributions made by Saudi Princess Haifa al-Faisal with checks drawn on her Riggs account that may have indirectly benefited two of the Sept. 11, 2001, hijackers. Upon reviewing the banking activity of the princess -- the wife of the current Saudi ambassador to the United States -- the FBI discovered the Saudi's account had about $36 million in withdrawals that were not reported to bank regulators -- $19 million in 2001 and $17 million in 2002, sources who have been briefed on the matter said.

Hendrix, while declining to comment on the Saudi matter, said Riggs has had no indication it is a target of an FBI investigation.

OCC officials and the FBI declined to comment. Saudi Embassy officials did not return phone calls.

The OCC has designated Riggs a "troubled institution," a regulatory designation that requires prior regulatory approval for a variety of actions, prohibits large severance payments to bank officers, and subjects the bank to more intense examinations, according to a source who has been briefed on the situation and spoke on condition of anonymity.

Hendrix said that the bank's regulatory problems are related primarily to its compliance with the Bank Security Act and that Riggs remains well-capitalized. "Riggs is financially strong," he said.

The regulatory scrutiny is casting Riggs's prestigious international banking relationships in a riskier light. Riggs has long held most of the embassy business in Washington, a business that also puts it in a position to be the personal U.S. banker of diplomats and other foreign officials. Until recently, that business has been a lucrative one for Riggs.

According to Riggs's annual report to the SEC, its international business lost $3 million in 2003, compared with a $1.2 million profit in 2002. The size of its international business has been shrinking as well, from $849 million in assets in 2001 to $675 million in assets in 2003.

Riggs officials said the bank spent $3.9 million in 2003 on consultants to help it comply with the Bank Secrecy Act. Hendrix said the bank has retained consultants to improve compliance with the Bank Secrecy Act and hired a new director of compliance and security to spearhead the bank's efforts. Riggs has also hired a team of former senior Secret Service agents who specialized in money laundering.

Riggs, with $6.4 billion in assets, is controlled by Joseph L. Allbritton and run by his 34-year-old son, Robert L. Allbritton.

Robert Allbritton, since becoming chief executive three years ago, has initiated a number of changes to try to boost profits, including improved technology and layoffs. He has tried to attract a high-net-worth clientele with investment advisory and other high-end services, while streamlining and improving its local retail banking operation.

High expenses and sluggish loan growth led Riggs's parent company to earn just under $1 million in 2003, down from $13 million in 2002.

Through more than 20 years of control by the Allbrittons, the bank has remained independent while most local banks its size have been sold to larger institutions.

One analyst said the recent regulatory flare-up may be the impetus for the company's board of directors to seek a buyer. Riggs stock closed down 12 cents yesterday, at $17.10, but has been on the rise since early February and is near its 52-week high. Henry J. Coffey Jr., bank analyst at Ferris, Baker Watts Inc., said the increase is based on "pure speculation" that the controversy may force Riggs to sell.

"They've put the infrastructure in place to deal with the issues at hand," Coffey said. "The question is, in the face of this is, do you sell the bank? That's about the only questions we ask with Riggs."

Friedman, Billings, Ramsey Group Inc. senior analyst Gary B. Townsend said a buyer may be reluctant to take on Riggs until the full extent of the regulatory problems are known.

"One problem stemming from this is that the embassy business . . . is their most profitable business," Townsend said. "If they should lose deposits and such as a consequence of this, it will have further profitability problems."