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Riggs Bank Scandal

Riggs Bank ScandalAn explosive report from the U.S. Senate Permanent Subcommittee on Investigations of the Committee on Governmental Affairs, issued in July, revealed that Riggs illegally operated bank accounts for former Chilean dictator Augusto Pinochet, and routinely ignored evidence of corrupt practices in managing more than 60 accounts for the government of Equatorial Guinea.

An ongoing internal investigation by Riggs has revealed that the bank's dealing with Pinochet dates back to 1985, while the Chilean despot remained in power, according to a November Washington Post report.

 

Riggs has not so far been cited for civil or criminal violations in connection with the Pinochet money-laundering scheme. In May, the bank paid $25 million in fines in connection with money-laundering violations related to the Equatorial Guinea and Saudi Arabian governments.

The bank is the subject of ongoing criminal investigations by the U.S. Department of Justice and the U.S. Attorney's Office for the District of Columbia, according to recent filings with the Securities and Exchange Commission.

Riggs, which traces its history back to 1840, likes to brag about serving such historical figures as President Abraham Lincoln (and 19 other presidents) and American Red Cross founder Clara Barton, and having supplied the gold for the purchase of the state of Alaska.

It capitalized on its venerable reputation in Washington to become the banker to the embassies that dot the city and the large foreign diplomatic corps resident in the U.S. capital.

Riggs eagerly sought to service them all, apparently even when dictators and their families requested the bank engage in illegal activities to launder money.

The Permanent Subcommittee on Investigations report found that from 1994 until 2002, Riggs opened at least six accounts and issued several certificates of deposit (CDs) for Pinochet while he was under house arrest in the United Kingdom and his assets were the subject of court proceedings. The aggregate deposits in the Pinochet accounts at Riggs ranged from $4 million to $8 million at a time.

What is now becoming apparent is that Riggs was collaborating with Pinochet even a decade earlier, with a scale of activity not yet clear.

Riggs was not a passive or unknowing actor in this drama.

According to the Permanent Subcommittee on Investigations report, high bank officials solicited Pinochet's business, the bank helped Pinochet set up offshore shell corporations and open accounts in the names of those corporations to disguise his control of the accounts, altered the names of his personal accounts to disguise their ownership, and otherwise worked to help him hide his money flow.

Although these activities seem to violate U.S. banking rules, the Office of the Comptroller of the Currency (OCC) did not take enforcement action against the bank after it learned of these matters in 2002.

That presumably was not unrelated to the fact that the OCC examiner at Riggs soon thereafter went to work for Riggs.

This is not just a matter of avoiding taxes or failing to follow legalistic rules. These are the actions that reward dictators, and help them live lavishly after stepping down from power.

They come at the expense of the dictator's victims, thousands of dead and tortured in the case of Pinochet.

 

Pinochet is not the only dictator for whom Riggs undertook money laundering.

Equatorial Guinea is a small, oil-rich West African country dominated by a dictator, President Teodoro Obiang Nguema Mbasago.

Obiang, his family and cronies live a life of luxury, while the rest of the country remains desperately poor.

The Permanent Subcommittee on Investigations report found that from 1995 until 2004, Riggs Bank administered more than 60 accounts and CDs for the government of Equatorial Guinea, Equatorial Guinea government officials or their family members.

Money laundering to cover up corruption appeared to be routine.

Combined, these accounts represented the largest relationship at Riggs Bank, with aggregate deposits ranging from $400 to $700 million at a time.

Riggs does not deny these activities took place, and its internal investigation is continuing. A number of Riggs employees involved in the scandals have been fired or demoted. In July, Riggs announced that it was going to be acquired by PNC Financial Services Group (about which see the profile of AIG above) for more than $700 million. Ongoing legal problems at

Riggs could derail the deal, which is supposed to be consummated early in 2005, but for now both parties say it remains on.

 

Top Ten Corporate Scams Continued...

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