WASHINGTON -(Dow Jones)- Senate investigators take fresh aim at federal bank regulators in a new report, faulting them for lax oversight of alleged money laundering abuses at Riggs Bank N.A. (RIGS) that they contend involved aiding corrupt leaders in Chile and Equatorial Guinea.
«Million-dollar cash deposits, offshore shell corporations, suspicious wire transfers, alteration of account names – all the classic signs of money laundering and foreign corruption made their appearance at Riggs Bank,» said Sen. Carl Levin, D-Michigan, ranking Democrat on a Senate panel that conducted a year-long probe into the matter.
«When a bank such as Riggs operates with such reckless abandon and federal regulators are so ineffectual in their oversight, it does little to inspire confidence in our country’s determination to stop money laundering, especially when that bank is located here in our nation’s capital,» Levin said.
In the 113-page report, the minority staff of the Senate Governmental Affairs Committee’s Permanent Subcommittee on Investigations urges bank regulators to bolster enforcement of anti-money laundering laws to prevent future oversight lapses.
«The failure to take quick and forceful enforcement action in the Riggs matter is not an isolated case,» states the report, which details the findings of the panel’s investigation.
«It is symptomatic of uneven and, at times, ineffective enforcement by all federal bank regulators of bank compliance with their anti-money laundering obligations,» the report said.
The report is due to be released at a hearing Thursday in which top officials from the Office of the Comptroller of the Currency and Riggs are slated to testify on the matter.
The OCC has come under increasing criticism from Democratic and Republican lawmakers for not acting sooner against Riggs. The OCC in May hit Riggs with a $ 25 million fine for money laundering violations. The OCC alleges Riggs failed to report millions of dollars worth of suspicious transactions by diplomats at the Embassy of Saudi Arabia and also didn’t report large sums withdrawn from Equatorial Guinea government accounts.
Comptroller of the Currency John Hawke has testified that the OCC first began to question transactions at Riggs Bank N.A. as far back as 1997, but didn’t take forceful enough actions to address the problems. The OCC should have taken tougher actions earlier against Riggs, Hawke has said. He has called for an internal review of OCC’s handling of the Riggs case to be completed by Sept. 1.
Senate investigators allege that Riggs, a unit of Riggs National Corp. (RIGS), solicited former Chilean dictator Augusto Pinochet for his business. Pinochet had $4 million to $8 million at Riggs between 1994 and 2002, the report says. Riggs helped Pinochet set up offshore shell corporations and helped him disguise his personal accounts, the investigators allege.
The report also questioned Riggs’ management of the accounts of the government of Equatorial Guinea, which Senate investigators allege totaled around $700 million between 1996 to 2004.
Riggs «turned a blind eye to evidence suggesting the bank was handling the proceeds of foreign corruption, and allowed numerous suspicious transactions to take place without notifying law enforcement,» the report said.
Senate investigators also fault R. Ashley Lee, the OCC’s examiner-in-charge at Riggs from 1998 to 2002 who now works for Riggs, for advising the OCC against taking tougher action against the bank. The report alleges Lee sought to suppress information on the Pinochet accounts and keep it from being entered into the OCC’s electronic database, a charge the report said Lee denied.
Lee «appeared to have become more of an advocate for the bank than an arms- length regulator,» the report said. A lawyer representing Lee did not return calls seeking comment.
Riggs Says Has «More To Do» On Compliance
In a statement, Riggs said it has «more to do» to comply with anti-money laundering rules, but said it is committed to «addressing and solving each and every one of our issues.»
The past year has been «among the most challenging» the bank has faced, Riggs said.
«It is clear that Riggs did not accomplish all that it needed to. Specifically, with respect to improvements that were outlined by our regulators, we regret that we did not more swiftly and more thoroughly complete the work necessary to fully meet the expectations of our regulators. For this, the bank accepts full responsibility,» Riggs said.
Several top senators have questioned whether the OCC and other regulators should be stripped of their powers to enforce the Bank Secrecy Act in light of the Riggs case, with a separate agency handling that responsibility. The Bank Secrecy Act is the main U.S. anti-money laundering law.
The report stopped short of recommending such a change, but called on regulators to move more quickly to slap fines against banks that are repeat offenders of money laundering rules and to implement due diligence requirements mandated by the Patriot Act by the end of the year.
Senate investigators also want Congress to impose a one-year waiting period before bank examiners can work for banks they have overseen. Currently there is no such ban. In Lee’s case, after being approached by Riggs, he recused himself from issues involving Riggs as of Aug. 8, 2002 and on Oct. 3, 2002, he started working for Riggs, the report said.
The OCC agrees that bank examiners should be restricted from working for banks they have overseen for a certain period of time after they have left the OCC, said OCC spokesman Bob Garsson. The OCC is currently reviewing whether it can impose any such restrictions, he said.
«The comptroller feels very strongly that there should be a separation, a break in time, between the time you work on examining a bank and the time in which you should be employed by that bank,» Garsson said.
As for the report’s other recommendations, the OCC will review them «very carefully,» Garsson said. The subcommittee’s interest in this matter is » entirely appropriate,» he said.
Additionally, the report raises questions about U.S. multinationals’ anti- corruption measures. It finds certain U.S. oil companies in Equatorial Guinea, including ExxonMobil Corp. (XOM) and Amerada Hess Corp. (AHC), have not sufficiently disclosed their payments to Equatorial Guinean officials and may have inadequately written or enforced anti-corruption policies.
The firms’ dealings with Equatorial Guinea’s president, retired Gen. Teodoro Obiang Nguema Mbasogo, and his relatives raise concerns about corruption in the small and largely impoverished West African country, where large amounts of oil and gas were discovered in the mid-1990s, the report says.
The staff report calls for U.S. multinationals to provide full disclosure and for Congress to amend the Foreign Corrupt Practices Act so that these firms would be compelled to do so when paying a foreign country’s officials, their family members, or entities controlled by them. -By Deborah Lagomarsino, Dow Jones Newswires;202-862-9255; deborah.lagomarsino@dowjones.com
(Campion Walsh contributed to this story)
Dow Jones Newswires 07-14-04 2245ET Copyright (C) 2004 Dow Jones & Company, Inc. All Rights Reserved.
