EQUIPO NIZKOR |
|
15jul04
Money Laundering and Foreign Corruption:
Enforcement and Efectiveness of the Patriot Act
United States Senate
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
Committee on Governmental Affairs
- Norm Coleman, Chairman Carl Levin, Ranking Minority Member.
Case study involving Riggs Bank Report
Prepared by the minority staff of the permanent subcommittee on investigations
Released in conjunction with the permanet subcommittee on investigations' hearing on july 15, 2004
Index
I. Introduction
II. Executive Summary
III. Findings
IV. Current Law
V. Riggs Bank
VI. Riggs’ AML Deficiencies and Regulators’ Inadequate Oversight
VII. Foreign Corruption and Oil Transparency Finding (7)
VIII. RecommendationsMoney Laundering and Foreign Corruption:
Enforcement and effectiveness of the Patriot Act
Case study involving Riggs bank
July 14, 2004I. Introduction
From 1999 to 2001, the U.S. Senate Permanent Subcommittee on Investigations of the Committee on Governmental Affairs, at the request of Senator Carl Levin, Ranking Minority Member, conducted a detailed investigation into money laundering activities in the U.S. financial services sector, including in-depth examinations of money laundering activities in private banking, correspondent banking, and the securities industry. Two Minority staff reports were issued, and Subcommittee hearings were held in November 1999 and March 2001.[1] This investigative work provided the foundation for many of the anti-money laundering provisions in Title III of the USA Patriot Act enacted in October 2001. Among other key provisions, the Patriot Act obligated U.S. financial institutions to exercise due diligence when opening and administering accounts for foreign political figures, and deemed corrupt acts by foreign officials as an allowable basis for U.S. money laundering prosecutions.
In 2003, again at Senator Levin’s request, the Subcommittee initiated a followup investigation to evaluate the enforcement and effectiveness of key anti-money laundering provisions in the Patriot Act, using Riggs Bank as a case history. The information in this Minority Staff Report is based upon the ensuing joint investigation by the Subcommittee’s Democratic and Republican staffs.
During the course of this investigation, the Subcommittee issued numerous subpoenas and document requests. The Subcommittee staff reviewed over 100 boxes, folders, and electronic compact disks containing hundreds of thousands of pages of documents, including bank statements, account opening materials, wire transfers, correspondence, electronic mail, contracts, board minutes, materials related to specific bank accounts and transactions, bank examination materials, audit reports, legislative materials, and legal pleadings. The Subcommittee staff also conducted numerous interviews with representatives from financial institutions, the Office of the Comptroller of the Currency (OCC), the Federal Reserve, oil companies, various experts, and other persons with relevant information.
II. Executive Summary
The evidence reviewed by the Subcommittee staff establishes that, since at least 1997, Riggs has disregarded its anti-money laundering (AML) obligations, maintained a dysfunctional AML program despite frequent warnings from OCC regulators, and allowed or, at times, actively facilitated suspicious financial activity.
The evidence also shows that federal regulators did a poor job of compelling Riggs Bank to comply with statutory and regulatory anti-money laundering requirements. They were too tolerant of the bank’s weak AML program, too slow in reacting to repeat deficiencies, and failed to make prompt use of available enforcement tools.
Two sets of Riggs accounts, one involving Augusto Pinochet and the other involving Equatorial Guinea, illustrate the bank’s poor AML compliance.[2] They also illustrate the failure of federal bank regulators to exercise meaningful oversight of a bank with numerous high risk accounts and fundamental, long-standing AML deficiencies. This regulatory failure is especially troubling for the ongoing battles against terrorism and corruption, since it makes it more difficult for the United States to stop terrorists, corrupt leaders, and other criminals from misusing our financial system. Federal regulators must do more to meet their legal obligation to protect the United States from money laundering, terrorist financing, and foreign corruption.
Assisting Pinochet. The evidence obtained by the Subcommittee staff shows that, from 1994 until 2002, Riggs Bank (Riggs) opened at least six accounts and issued several certificates of deposit (CDs) for Augusto Pinochet, former President of Chile, 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 to $8 million at a time. The Subcommittee investigation has determined that the bank’s leadership directly solicited the accounts from Mr. Pinochet, and Riggs account managers took actions consistent with helping Mr. Pinochet to evade legal proceedings seeking to discover and attach his bank accounts. The Subcommittee investigation found that Riggs opened multiple accounts and accepted millions of dollars in deposits from Mr. Pinochet with no serious inquiry into questions regarding the source of his wealth; helped him 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; transferred $1.6 million from London to the United States while Mr. Pinochet was in detention and the subject of a court order to attach his bank accounts; conducted transactions through Riggs’ own accounts to hide Mr. Pinochet’s involvement in some cash transactions; and delivered over $1.9 million in cashiers checks to Mr. Pinochet in Chile to enable him to obtain substantial cash payments from banks in that country.
The Subcommittee investigation also determined that Riggs concealed the existence of the Pinochet accounts from OCC bank examiners for two years, initially resisted OCC requests for information, and closed the accounts only after a targeted OCC examination in 2002. Despite Riggs’ track record of repeat AML deficiencies, the OCC’s concern about the Pinochet accounts, and Riggs’ concealment of them from the agency, the OCC took no enforcement action against the bank after it learned of those actions in 2002. Moreover, in July 2002, the OCC Examinerin- Charge at Riggs instructed the examiners who had investigated the Pinochet accounts not to include their examination memorandum or supporting workpapers in the OCC’s electronic files for Riggs Bank. The Subcommittee learned that such an instruction was highly unusual and contrary to OCC procedure and practice. About a month later, the OCC Examiner-in-Charge accepted a job at Riggs Bank.
Equatorial Guinea Accounts. The Subcommittee investigation also determined that, from1995 until 2004, Riggs Bank administered more than 60 accounts and CDs for the government of Equatorial Guinea (E.G.), E.G. government officials, or their family members. By 2003, the E.G. accounts represented the largest relationship at Riggs Bank, with aggregate deposits ranging from $400 to $700 million at a time. The Subcommittee investigation has determined that Riggs Bank serviced the E.G. accounts with little or no attention to the bank’s anti-money laundering obligations, 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 Subcommittee investigation found, for example, that Riggs opened multiple personal accounts for the President of Equatorial Guinea, his wife, and other relatives; helped establish shell offshore corporations for the E.G. President and his sons; and over a three-year period, from 2000 to 2002, facilitated nearly $13 million in cash deposits into Riggs accounts controlled by the E.G. President and his wife. On two of those occasions, Riggs accepted without due diligence $3 million in cash deposits for an account opened in the name of the E.G. President’s offshore shell corporation, Otong, S.A.
In addition, Riggs opened an account for the E.G. government to receive funds from oil companies doing business in Equatorial Guinea, under terms allowing withdrawals with two signatures, one from the E.G. President and the other from either his son, the E.G. Minister of Mines, or his nephew, the E.G. Secretary of State for Treasury and Budget. Riggs subsequently allowed wire transfers withdrawing more than $35 million from the E.G. government account, wiring the funds to two companies which were unknown to the bank and had accounts in jurisdictions with bank secrecy laws. The Subcommittee has reason to believe that at least one of these recipient companies is controlled in whole or in part by the E.G. President. When, in 2004, the bank requested more information about the two companies from the E.G. President, he declined to provide it, except to say the wire transfers to them had been authorized.
The senior leadership at Riggs Bank were well aware of the E.G. accounts and met on several occasions with the E.G. President and other E.G. officials. The bank leadership permitted the account manager handling the E.G. relationship to become closely involved with E.G. officials and business activities, including advising the E.G. government on financial matters and becoming the sole signatory on an E.G. account holding substantial funds. The bank exercised such lax oversight of the account manager’s activities that, among other misconduct, the account manager was able to wire transfer more than $1 million from the E.G. oil account at Riggs to another bank for an account opened in the name of Jadini Holdings, an offshore corporation controlled by the account manager’s wife.
Riggs Bank failed to cooperate initially with Subcommittee requests for information about the E.G. accounts, identifying only about half the E.G. accounts at the bank and producing limited account documentation and electronic mail. The Subcommittee later learned that the bank had failed to designate the E.G. accounts as high risk accounts until October 2003, and did not subject them to additional scrutiny despite obvious warning signs, such as the involvement of foreign political figures, a country with a culture of corruption, and frequent high dollar transactions. The bank also failed to monitor or report suspicious activity in the E.G. accounts. The bank closed these accounts in recent weeks.
Riggs’ Dysfunctional AML Program. The evidence demonstrates that the Pinochet and E.G. accounts were not treated in an unusual manner, but were the product of a dysfunctional AML program with long-standing, major deficiencies. These deficiencies included the inability readily to identify all of the accounts associated with a particular client, the absence of any risk assessment system to identify high risk accounts, inadequate client information, the lack of an established policy for handling accounts associated with foreign political figures, the failure to provide enhanced monitoring of high risk accounts, the failure to monitor wire transfer activity, the failure to detect and report suspicious activity, untimely and incomplete internal audits, and inadequate AML training. These flaws were repeatedly identified in regulatory examinations and internal audits, and Riggs repeatedly promised to correct them, but failed to do so.
Regulatory Failure. Given the fundamental, long-standing deficiencies in Riggs’ AML program, it is difficult to understand why federal regulators failed to act sooner to require the bank to correct them. The OCC recently acknowledged: “there was a failure of supervision” at Riggs, and “[w]e gave the bank too much time.” The evidence shows that, since 1997, OCC examiners repeatedly identified major AML deficiencies at Riggs Bank, but more senior OCC personnel allowed these AML deficiencies to continue year after year without forceful action to stop them.
In the case of Riggs, the evidence also indicates that the OCC’s Examiner-in-Charge (EIC) appeared to have become more of an advocate for the bank than an arms-length regulator. In 2001, for example, he advised more senior OCC personnel against taking a formal enforcement action against Riggs, because the bank had promised to correct identified AML deficiencies. In 2002, he ordered examiners not to include a memorandum or workpapers on the Pinochet examination in the OCC’s electronic database. About a month after giving this order, that same examiner was hired by Riggs, creating an appearance of a conflict of interest. During his next 18-months at the bank, he attended a number of meetings with OCC personnel related to Riggs’ AML problems. Federal law bars former federal employees from appearing before their former agencies on certain matters, and OCC rules bar former OCC employees from even attending meetings with the agency for two years, unless the OCC ethics office approves the contact. Despite these postemployment restrictions, the former Riggs examiner failed to obtain clearance from the OCC ethics office prior to attending the meetings with OCC personnel. These actions - - advising against a formal enforcement action, suppressing the Pinochet examination materials, accepting a job offer at the bank he regulated, and ignoring post-employment restrictions on OCC contact -- suggest this Examiner had become much too close to Riggs during the years he was responsible for overseeing it.
In addition, the facts demonstrate that his supervisors were too slow in reacting to repeat deficiencies at the bank and were too reluctant to make use of available enforcement tools to compel AML compliance. In 2001, for example, when presented with three examination reports outlining AML deficiencies at Riggs, OCC enforcement personnel went along with the EIC’s recommendation against taking any enforcement action. In 2002, after learning that Riggs had hid the Pinochet accounts from the agency for two years and facilitated suspicious transactions, OCC supervisors, again, failed to take any enforcement action. The OCC failed even to issue a final examination report on the Pinochet matter. In 2003, after uncovering extremely troubling information in connection with accounts associated with Saudi Arabia, the OCC took its first enforcement action against the bank, issuing a cease and desist order requiring it to revamp its AML program. This order was more comprehensive and capable of enforcement in court than directives in prior examination reports, but included no punitive measures at the time such as a civil fine. It was only in 2004, six years after the OCC began citing Riggs for AML deficiencies, that federal regulators imposed their first civil fine on the bank.
The key OCC enforcement actions against Riggs Bank also took place after negative press reports began raising public questions about Riggs’ AML safeguards. For example, the OCC’s in-depth review of the Saudi accounts followed press articles that began appearing in November 2002, suggesting links between certain Riggs accounts and the 9-11 terrorist attack. This examination resulted in the OCC’s identifying the same deficiencies as in earlier years, but in contrast to the agency’s prior willingness to rely on promises by the bank to improve, the OCC issued a public cease and desist order requiring corrective action. The OCC’s examination of the E.G. accounts in 2003 and 2004 was, in turn, prompted by a negative press article in January 2003 suggesting these Riggs accounts were being misused by E.G. officials and by the Subcommittee’s investigation of these accounts throughout 2003. The OCC has indicated that it was the E.G. examination that opened their eyes to still more bank misconduct and to evidence of the bank’s utter failure to implement promised AML reforms, resulting in the decision to impose a civil fine on the bank.
The Subcommittee’s investigation indicates that the failure of supervision in the Riggs matter is not an isolated case, but symptomatic of a pattern of uneven and, at times, ineffective AML enforcement by federal regulators. The General Accounting Office has summarized a number of cases in addition to Riggs showing that federal regulators have allowed AML compliance problems to persist for years without correction. These cases indicate that all of the federal financial regulators, not just the OCC, need to strengthen their AML enforcement efforts by requiring prompt correction of identified AML deficiencies, making greater use of formal enforcement tools when financial institutions ignore their AML obligations, and issuing more timely civil fines. Regulators should also consider developing a policy requiring mandatory enforcement action within a specified period of time against any financial institution with major, repeat AML violations.
Federal regulators should take broader actions as well to strengthen AML oversight. First, they should finalize overdue regulations and revise existing AML examination manuals to implement the due diligence provisions in the Patriot Act designed to combat money laundering and foreign corruption. Federal bank regulators should also elevate the importance of AML controls by routinely including AML assessments in the annual Report on Examination given to a bank’s Board of Directors, and make these annual AML assessments available to the public, both to increase bank compliance and to alert other financial institutions to banks with inadequate AML controls. Congress should also consider enacting new legislation, modeled after 41 U.S.C. § 423(d) for federal procurement officials, imposing a one-year cooling-off period before an Examiner-in-Charge can take a position with the financial institution he or she oversaw.
An important ancillary issue raised by the Riggs case history involves the ability of U.S. financial institutions with foreign affiliates to get key due diligence information about accounts opened and managed by their foreign affiliates. After questions arose about the $35 million in wire transfers from the E.G. oil account, for example, Riggs sent letters under section 314 of the Patriot Act to at least two banks, Banco Santander and HSBC USA, asking them voluntarily to share information about the beneficial owners of certain accounts to which the funds had been directed. These accounts included, for example, ones opened in the name of Apexside Trading Ltd. and Kalunga Co. S.A., each of which the Subcommittee has reason to believe may be owned in whole or in part by the E.G. President.
Both banks declined to provide the requested information, because the accounts had been opened at their foreign affiliates in Luxembourg or Spain. Both banks took the position that bank secrecy laws in those jurisdictions barred disclosure of client information by their affiliates, not only to third parties, but also to personnel within the same bank if located outside the host country. This bar on disclosure means, in essence, that banks operating in the United States seeing large wire transfers directed to accounts at foreign affiliates of their own bank cannot obtain key information about the beneficial owners of those accounts, even from their own affiliates. In the Riggs matter, HSBC USA and Banco Santander told the Subcommittee that their own affiliates couldn’t tell them the name of the individuals who owned the companies receiving the multi-million dollar wire transfers, whether those companies were owned by a political figure, or even whether the accounts were still open or had been closed.
This bar on disclosure across international lines, even within the same financial institution, presents a significant obstacle to effective AML due diligence for banks operating in the United States and a huge impediment to international efforts to stop money laundering, drug trafficking, and terrorism. To overcome this obstacle, the United States should work with the European Union and other international bodies to enable financial institutions with U.S. and foreign affiliates to exchange client information across international lines to safeguard against money laundering and terrorist financing.
Oil Company Payments. During its analysis of large bank transactions involving E.G. accounts at Riggs Bank and other financial institutions, the Subcommittee staff became aware of a number of substantial payments that had been made by oil companies doing business in Equatorial Guinea to individual E.G. officials, their family members, or entities controlled by these officials or family members. For example, these payments, which sometimes exceeded $1 million, paid for E.G. land leases or purchases, E.G. Embassy expenses, in-country security services, or expenses for E.G. students studying abroad. In a few instances, the evidence shows that oil companies entered into business ventures with companies owned in whole or in part by the E.G. President, other E.G. officials, or relatives. For example, in 1998, ExxonMobil established an oil distribution business in Equatorial Guinea of which 85 percent is owned by ExxonMobil and 15 percent by Abayak S.A., a company controlled by the E.G. President.
These types of payments and business ventures, which came to light as a result of the Subcommittee’s detailed review of bank transactions involving Equatorial Guinea, are often unknown to the public and raise concerns related to corruption and profiteering. To reduce opportunities for corruption, the oil companies doing business in Equatorial Guinea should adhere to disclosure practices advocated in such international transparency initiatives as the Extractive Industries Transparency Initiative led by U.K. Prime Minister Tony Blair, and the G-8 Anti-Corruption and Transparency Initiative. These initiatives would require the oil companies to make public disclosure of all payments made to E.G. officials, their family members, or entities they control. To further reduce opportunities for corruption, U.S. oil companies should not participate in future business ventures in which individual E.G. officials or their family members have a direct or beneficial interest. Congress should also amend the Foreign Corrupt Practices Act to require U.S. companies to disclose substantial payments to and business ventures entered into with a country’s officials, their family members, or entities they control.
III. Findings
Based upon its investigation, the Subcommittee Minority staff makes the following findings of fact.
(1) Assisting Pinochet. Riggs Bank assisted Augusto Pinochet, former president of Chile, to evade legal proceedings related to his Riggs bank accounts and resisted OCC oversight of these accounts, despite red flags involving the source of Mr. Pinochet’s wealth, pending legal proceedings to freeze his assets, and public allegations of serious wrongdoing by this client.
(2) Turning a Blind Eye. Riggs Bank managed more than 60 accounts and certificates of deposit for Equatorial Guinea, its officials, and their family members, with little or no attention to the bank’s anti-money laundering obligations, 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.
(3) Dysfunctional AML Program. For many years, Riggs Bank ignored repeated directives by federal bank regulators to improve its anti-money laundering program, instead employing a dysfunctional system that failed to safeguard the bank against money laundering or foreign corruption.
(4) Regulatory Failure at Riggs. For many years, OCC examiners accurately and repeatedly identified major anti-money laundering deficiencies at Riggs Bank, but OCC supervisors failed to take strong action to require improvements. OCC regulators were tolerant of the bank’s weak anti-money laundering program, too willing to rely on bank promises to correct repeat deficiencies, and failed initially to use available enforcement tools. Federal Reserve regulators were slow and passive.
(5) Conflicts of Interest. By taking a job at Riggs in 2002, after the OCC failed to take enforcement action against the bank in 2001 and 2002 for AML deficiencies, the former OCC Examiner-in-Charge at Riggs created, at a minimum, an appearance of a conflict of interest. In addition, despite federal law barring former employees from appearing before their former agencies on certain matters, and OCC rules barring former employees from attending meetings with the agency for two years without prior approval from the OCC ethics office, the former Examiner attended multiple meetings with OCC personnel related to Riggs’ AML compliance, without obtaining the required clearance.
(6) Uneven AML Enforcement. Current AML enforcement efforts by federal agencies are uneven and, at times, ineffective, as demonstrated by cases in which federal regulators have allowed AML compliance problems to persist at some financial institutions for years, failed after three years to issue final regulations implementing the Patriot Act’s due diligence requirements, and failed to issue revised guidelines for bank examiners testing AML compliance with the Patriot Act’s due diligence requirements combating money laundering and foreign corruption.
(7) Unseen Payments. Oil companies operating in Equatorial Guinea may have contributed to corrupt practices in that country by making substantial payments to, or entering into business ventures with, individual E.G. officials, their family members, or entities they control, with minimal public disclosure of their actions.
IV. Current Law
A. Key Anti-Money Laundering Laws
Money laundering has been defined as “the movement of illicit cash or cash equivalent proceeds into, out of, or through the United States [or] ... United States financial institutions.”[3] Anti-money laundering laws also apply to terrorist financing, including any legally obtained funds if intended for use in planning, committing, or concealing a terrorist act.[4] History has shown that financing is key to terrorism, corruption, and other criminal acts. Money launderers want to be able to transfer funds across international lines, move money quickly, and minimize inquiries into their finances and activities. U.S. anti-money laundering laws are designed to prevent terrorists and other criminals from utilizing U.S. financial institutions to commit their crimes.
Three key laws lay out the basic anti-money laundering obligations of U.S. financial institutions, the Bank Secrecy Act (BSA) of 1970, the Money Laundering Control Act of 1986, and the USA Patriot Act of 2002, which amended both prior laws.[5]
The BSA, as amended by the Patriot Act, requires financial institutions operating in the United States to undertake a number of anti-money laundering efforts to ensure they do not become conduits for terrorist financing or criminal proceeds, or facilitators of money laundering. Key provisions include requirements for financial institutions to: (1) establish anti-money laundering programs with explicit policies and procedures, a BSA officer, employee training, and an internal audit function;[6] (2) verify the identity of persons seeking to open and maintain accounts;[7] and (3) exercise appropriate due diligence when opening and administering accounts for foreign financial institutions or wealthy foreign individuals, including senior foreign political figures.[8] In addition, the BSA authorizes the U.S. Department of Treasury to require financial institutions and other businesses to file reports on large currency transactions and suspicious activities to guard against money laundering.[9]
The Money Laundering Control Act, enacted partly in response to hearings held by this Subcommittee in 1985, was the first in the world to make money laundering a crime. It prohibits any person from knowingly engaging in a financial transaction which involves the proceeds of a “specified unlawful activity.”[10] The law provides a long list of specified unlawful activities, including, for example, terrorism, drug trafficking, and fraud. Most listed activities are crimes under U.S. law; however, in 2002, the Patriot Act expanded the list to include, among other items, foreign crimes involving corruption such as bribery and misappropriation of funds. The purpose of this addition was to make it illegal for a bank in the United States knowingly to accept funds that were the proceeds of foreign corruption. The addition of foreign corruption crimes to the list of specified unlawful activities was based primarily on the Subcommittee’s 1999 private banking hearing which established that senior foreign political figures were using U.S. bank accounts to hide and profit from misappropriated funds looted from their home countries.
The aim of these laws and other related laws is to enlist U.S. financial institutions in the fight against money laundering. Together, they require financial institutions to refuse to engage in financial transactions involving criminal proceeds, to monitor transactions and report suspicious activity, and to operate active anti-money laundering programs.
B. Anti-Money Laundering Regulation and Oversight
The Secretary of the Treasury is the primary federal regulator charged with enforcing the key federal anti-money laundering laws.[11] Last year, the Secretary established a new internal office, the Executive Office for Terrorist Financing and Financial Crime (EOTF/FC), headed by a Deputy Assistant Secretary. This office oversees the operation of the Financial Crimes Enforcement Network (FinCEN), a Treasury bureau which, among other duties, develops BSA regulations and guidance, analyzes currency transaction reports and suspicious activity reports filed by financial institutions, and interacts with local, state, federal, and international law enforcement as well as other financial intelligence units around the world. The EOTF/FC also oversees the Office of Financial Asset Control (OFAC) which, among other duties, is primarily responsible for identifying countries, terrorists and drug traffickers subject to sanction under U.S. law, and administering the statutory regime for freezing their financial assets and blocking them from using the U.S. financial system.
Also within the Treasury Department is the Office of the Comptroller of the Currency (OCC) which, among other duties, is responsible for overseeing the operation of banks holding a national banking charter. Like other financial regulators, including the Federal Reserve Board, Federal Deposit Insurance Corporation, Office of Thrift Supervision, and National Credit Union Administration, the OCC routinely examines financial institutions under its jurisdiction to ensure their safety and soundness and compliance with all statutes and regulations, including antimoney laundering requirements. For large and mid-size banks within its jurisdiction, the OCC examines their operations on a continual basis, looking at routine issues as well as particular areas of concern. On a roughly annual basis, the OCC presents a Report on Examination to the bank’s Board of Directors and meets with the Board to explain its findings and any concerns. The OCC analysis includes an overall safety and soundness rating for the bank using the CAMELS rating system.[12] CAMELS ratings are on a scale of 1 to 5, in which 1 signifies a safe and secure bank with no cause for supervisory concern, 3 signifies an institution with supervisory concerns in one or more areas; and 5 signifies an unsafe and unsound bank with severe supervisory concerns. OCC can also label a bank a “troubled institution” under 12 C.F.R. § 5.51 Subpart (d).
In 1998, federal bank regulators issued revised examination manuals to guide examiners conducting anti-money laundering reviews of financial institutions. Many elements in this guidance were the result of joint consultations among the banking regulators. In September 2000, the OCC issued a revised “Bank Secrecy Act/Anti-Money Laundering Handbook” to provide additional, updated guidance to financial institutions about effective anti-money laundering policies and procedures and areas of concern. Although the Patriot Act made numerous changes in the law in 2002, the AML examination manual used by the OCC has not been fully updated to include, for example, the new due diligence requirements.
Should the OCC determine that a bank is engaging in an unsafe or unsound practice or has violated any law, rule, regulation, or other requirement placed on the bank, the agency can take a variety of informal and formal enforcement actions. Informal actions can include requiring a safety and soundness plan, memorandum of understanding, Board resolution, or commitment letter pledging to take specific corrective actions by a date certain, or issuing a supervisory letter to the bank listing specific “matters requiring attention.” These informal enforcement actions are generally not made public and are not enforceable in court. Formal enforcement actions include issuing a cease and desist order requiring the bank to stop the unsafe practice or violation or take affirmative action to correct identified problems;[13] imposing a civil monetary penalty on the bank;[14] suspending or removing one or more individuals from the bank;[15] or referring misconduct for criminal prosecution.[16] In addition, if the OCC determines that a bank “has failed to establish and maintain” an AML program or “failed to correct” any previously identified AML problems, the law requires the OCC to issue an order directing the bank “to cease and desist from its violation” of federal AML law.[17]
V. Riggs Bank
Riggs Bank failed to comply with its legal obligation to establish and maintain an effective anti-money laundering program. Two examples involving Riggs accounts associated with Augusto Pinochet and Equatorial Guinea illustrate the extent of the bank’s AML deficiencies.
A. Riggs National Corporation and Riggs Bank
Riggs Bank N.A. is a well-known and long-standing financial institution which is incorporated in Delaware and operates throughout the Washington, D.C. metropolitan area.[18] Riggs Bank is wholly owned by Riggs National Corporation, a publicly traded bank holding company which is incorporated in Delaware and headquartered in Washington D.C. As of 2003, Riggs National Corporation reported approximately $6.3 billion in assets, about 95% of which were held by Riggs Bank, its principal operating subsidiary.
Riggs Bank operates primarily in the United States, but also maintains several foreign offices. Its foreign banking operations have included Riggs Bank Europe, Ltd. in London and Berlin; The Riggs Bank & Trust Company (Bahamas) Ltd., later reorganized as a Riggs Bank branch office in the Bahamas; Riggs Bank and Trust Company Ltd. on the isle of Jersey; and Riggs & Co. International Ltd. (RCIL) in London. Riggs Bank announced earlier this year that it intends to close down its London and German banks. Riggs Bank has also maintained an Edge Act subsidiary in Miami called Riggs International Banking Corporation (RIBC), but has indicated that it intends to shut down this company as well. Riggs Bank maintains several subsidiaries involved in investment activities, including Riggs Investment Advisors, Inc. (formerly named Riggs Investment Management Corporation (RIMCO)), J. Bush & Co., Inc.; Riggs Capital, Riggs Capital II, Riggs Capital Partners, LLC; and Riggs Capital Partners II, LLC. Riggs has often used a brand name, "Riggs & Co.," to refer to its wealth management companies.
Major Lines of Business. Riggs Bank has several major lines of business, including retail banking and lending services throughout the Washington metropolitan area; corporate and institutional banking services provided to businesses, government agencies, and non-profits; and wealth management services provided to high income individuals through the bank’s domestic and international private banking departments.
“Private banking” is a term used to refer to financial services provided exclusively to wealthy individuals.[19] Assigned to each private banking client is a bank employee who acts as a personal liaison between the bank and the client to facilitate the client’s use of the bank’s financial services. For example, the bank employee, often called a relationship manager, private banker, or account manager, helps clients to open accounts in various countries, complete wire transfers, convert currencies, purchase certificates of deposit, open investment accounts, obtain financial advice and estate planning, and obtain various lines of credit. In many instances, a private banker will set up an offshore shell corporation for a client and open accounts in the name of that shell corporation, in order to disguise the client’s ownership of the account or certain assets. All of these services were provided by Riggs to its domestic and international private banking clients.
Riggs has also been a leader in a specialized area known as Embassy Banking, opening and administering accounts to more than 95% of the foreign missions and embassies located throughout the Washington metropolitan area. Until recently, Riggs’ guiding principle was to open Embassy accounts for any country or individual holding diplomatic credentials from the U.S. State Department.[20] The Subcommittee’s review indicates that many foreign Embassies opened multiple accounts at Riggs, not only to facilitate the day-to-day management of the relevant Embassy office, but also in some cases to serve the financial needs of its diplomatic personnel, their family members, and, at times, other governmental agencies, officials, and individuals from the relevant country. The Subcommittee found that many of the Embassy accounts it studied had been opened for the personal use of senior foreign political leaders or their family members and functioned in the same manner as private banking accounts.
Embassy Banking has represented a major line of business for Riggs Bank. In recent years, these accounts have produced about 20 percent of Riggs’ total revenues in terms of deposits.[21] About 44 percent of the Embassy deposit base came from African and Caribbean countries, 24 percent from the Middle East, and 17 percent from Latin America, Portugal and Spain.[22] According to an OCC analysis, about 7 percent of the Embassy relationships involved jurisdictions designated as non-cooperative with international anti-money laundering efforts.[23] Riggs’ two largest Embassy clients were Equatorial Guinea and Saudi Arabia. Only a few other banks, such as Wachovia National Bank and Congressional Bank, are also engaged in Embassy Banking.
Riggs Leadership.
Riggs Bank has an 11-person Board of Directors which generally meets quarterly. Three longtime Board members are Joseph L. Allbritton, his wife Barbara B. Allbritton, and their son Robert L. Allbritton, who, together, represent the largest shareholders of Riggs National Corporation. Joseph Allbritton resigned from the Riggs Bank Board in 2001, and from the Riggs National Corporation Board in 2004, while Robert Allbritton now serves as Chairman of both. Ms. Allbritton served as a director of Riggs National Corporation from 1991 to 1996, and served on the Riggs Bank Board until her resignation in 2004.
The Riggs Bank Board of Directors has six committees that assist with overseeing bank operations. Each of these committees at the bank has a parallel committee at Riggs National Corporation, and the two Boards and the parallel committees often meet jointly. The bank’s Executive, Risk Management and Budget Committee helps to ensure the overall efficient functioning of the bank. The Audit Committee oversees the bank’s financial statements and work performed by its internal and external auditors. The Compensation Committee assists the Board with issues related to compensation and benefits. The Nominating/Corporate Governance Committee recommends Board nominations and monitors corporate governance issues. The International Committee provides a forum for strategic planning for the bank in the international arena, including development of its international private banking and Embassy accounts.[24] In 2004, in response to problems identified by federal regulators, the Riggs Bank and Riggs National Corporation Boards each established a Bank Secrecy Act Compliance Committee to monitor and coordinate the bank’s adherence to its anti-money laundering obligations.
The Riggs National Corporation Board directors in 2004 are: Robert L. Allbritton, J. Carter Beese, Charles A. Camalier, Timothy C. Coughlin, Lawrence I. Hebert, Steven B. Pfeiffer, Robert L. Sloan, Jack Valenti, William L. Walton, and Eddie N. Williams.
The membership of the Riggs Bank Board of Directors overlaps that of the Riggs National Corporation Board, but also has other individuals. The Riggs Bank Directors in 2004 are: Ms. Allbritton, Robert Allbritton, Nathan Baxter, Jacqueline C. Duchange, Thomas F. Fitzgerald, Heather Foley, Mr. Hebert, Frederick J. Ryan, Jr., Robert Roane, John A. Sargent, and Stephen J. Trachtenberg.
One of the most senior and prominent members of the Riggs National Corporation Board over the years has been Joseph Allbritton, who served as a bank director for more than twenty years, from 1981 until 2004, when he resigned. For many years, Mr. Allbritton was the Chairman of the Board of both Riggs Bank and Riggs National Corporation. He also served as the Chief Executive Officer (CEO) of both from 1983 until 2001. In February 2001, Robert Allbritton succeeded his father as Chairman of the Board of Riggs Bank. He also became Chairman of the Board and CEO of Riggs National Corporation.
Many of the other Riggs National Corporation Board members have close ties to Riggs. For example, Mr. Hebert, a director since 1981 of Riggs Bank and since 1988 of the bank holding company, became president and CEO of Riggs Bank in 2001, when Joseph Allbritton vacated that post. He is also an officer and director of several other Allbritton businesses, including Perpetual Corp. which owns Allbritton Communications Co. Mr. Coughlin, also a director since 1988, was president of Riggs National Corporation from 1992 until June 2004, when he retired. Prior to 1992, he worked at Riggs Bank and briefly returned to the bank in December 2003, when he assumed responsibility for the E.G. relationship and then, in March 2004, for the Embassy Banking and International Private Banking Departments. Mr. Pfeiffer has been a director since 1989, Chairman of the Executive Committee, Chairman of the International Committee, and a member of the Audit Committee. He is also a senior partner at Fulbright & Jaworski, a law firm that performs legal services for the bank. Mr. Beese, a director since 2001, is also president of two venture capital firms owned by Riggs Bank and, in 2002, received about $2.6 million in management fees from Riggs to administer certain venture capital investment companies. Mr. Camalier, a director since 2001, is managing partner of Wilkes Artis, another law firm that performs legal work for Riggs Bank.
Today, the most senior officer of Riggs Bank is Mr. Hebert, the President and CEO. The chief operating officer is Robert Roane. The general counsel of the bank is Joseph Cahill. The chief financial officer is Steven Tamburo. The chief risk officer is R. Ashley Lee. The head of the International Banking Group was Raymond Lund, who was asked to leave the bank in March 2004. The head of compliance and security was Paul Glenn, who was succeeded in 2003 by David Caruso.
Anti-Money Laundering Efforts. Despite having large numbers of foreign clients, including clients from countries with high risks of money laundering and foreign corruption, Riggs has repeatedly been cited for having weak anti-money laundering controls.
The elements of an effective anti-money laundering program are well established, and federal bank examiners have been reviewing banks’ anti-money laundering efforts for nearly a decade. For example, in 1997, the Federal Reserve published detailed guidance on anti-money laundering safeguards for private banking operations.[25] Among other elements, this guidance urges “senior management’s active oversight of private banking activities and the creation of an appropriate corporate culture” to ensure a “sound risk management and control environment.” It recommends that banks develop written anti-money laundering procedures, including “know- your-customer” (KYC) policies and procedures.[26] It directs banks to perform careful due diligence reviews before accepting new clients and to compile “basic background information” on each client for whom an account is opened, including the client’s name, address, form of identification, business, source of wealth, and the type and volume of transactions expected to be passing through the clients' accounts.[27] At private banks that maintain and manage accounts for clients’ offshore corporations, the guidance recommends that the bank keep careful records of the corporation’s beneficial owners.
Once accounts are opened, the guidance stresses the importance of management information systems that can compile comprehensive information on all accounts and financial services related to a particular client and can be used to monitor account activity to detect suspicious transactions. The guidance repeatedly stresses the need to monitor account transactions, including wire transfer activity, and report suspicious activity to law enforcement. The guidance also stresses the importance of internal bank supervision of account managers, stating: “Institutions should not rely exclusively on any individual relationship manager or immediate supervisor to, for example, waive documentation required to open an account, approve the client profile, authorize a new client relationship, fully identify (or ‘know’) the client, and monitor client accounts for unusual transactions.” It recommends instead that independent personnel such as compliance officers, risk management officers, or senior management also exercise anti-money laundering oversight. The guidance stresses, in addition, the importance of internal audit reviews to test the effectiveness of a bank’s anti-money laundering policies and procedures.
The Federal Reserve guidance is just one of many alternatives that provide extensive information about operating an effective anti-money laundering program. In 2000, for example, the OCC issued a “Comptroller’s Handbook on Bank Secrecy Act/Anti-Money Laundering” to provide detailed guidance to financial institutions about effective anti-money laundering policies and procedures. Because OCC regulations have required all nationally chartered banks to have an AML program since 1987, most banks have had years of experience in establishing and operating effective AML controls.[28]
Despite such long-standing guidance, the anti-money laundering program at Riggs Bank was almost completely dysfunctional. Identified deficiencies have included an inability to compile information on all of the accounts related to a specific client, inadequate information on client backgrounds and the source of wealth in client accounts, a failure to identify high risk accounts, inadequate monitoring of client transactions, inadequate systems for reporting suspicious activity to law enforcement, weak supervision of account managers, and weak leadership within the bank concerning the importance of anti-money laundering efforts.[29] These deficiencies were identified by the bank’s primary regulator, the OCC, and the bank’s own auditors, as early as 1997, and repeated in numerous examination and audit reports over the next five years.
In 2002 and 2003, Riggs Bank was the subject of media reports about questionable transactions and accounts involving officials from Saudi Arabia and Equatorial Guinea. In response, the OCC initiated intensive examinations of both sets of accounts. In July 2003, the OCC issued a cease and desist order requiring Riggs to revamp its anti-money laundering programs. Riggs consented to the order and agreed to undertake numerous reforms to strengthen its BSA operations. In May 2004, the OCC and FinCEN fined Riggs Bank $25 million for willfully violating its legal obligations to implement an adequate anti-money laundering program and file currency transaction and suspicious activity reports, and for failing to comply with the consent order. This fine is the largest ever assessed under the Bank Secrecy Act. In addition, in May 2004, the Federal Reserve issued a cease and desist order requiring the Riggs National Corporation to improve its oversight of the bank, internal controls, and risk management.
Beginning in early 2003, the Subcommittee initiated its own investigation of private banking and Embassy accounts at Riggs Bank. The following information on Riggs’ handling of accounts for Augusto Pinochet and Equatorial Guinea illustrates the bank’s disregard for antimoney laundering requirements and its active facilitation of suspicious activity. Additional information about the bank’s deficient anti-money laundering controls and the failure of federal bank regulators to correct them follows.[30]
B. Augusto Pinochet
Finding (1): Assisting Pinochet. Riggs Bank assisted Augusto Pinochet, former president of Chile, to evade legal proceedings related to his Riggs bank accounts and resisted OCC oversight of these accounts, despite red flags involving the source of Mr. Pinochet’s wealth, pending legal proceedings to freeze his assets, and public allegations of serious wrongdoing by this client.
Augusto Pinochet Ugarte, former president of Chile, is a controversial political figure whose name is known world wide. After taking power in a 1973 coup, he served as President of Chile until 1990, and as Commander-in-Chief of the Chilean army until 1998. After stepping down from the army, he became a “Senator for life.”[31] Since the first days of his regime, Mr. Pinochet has been accused of involvement with human rights abuses, torture, assassinations, death squads, drug trafficking, arms sales, and corruption, but never convicted in a court of law.[32] Since 1996, he has been the subject of repeated litigation in Spain,[33] the United Kingdom,[34] Chile,[35] and other countries [36] by persons seeking to hold him accountable for crimes committed during his presidency. In each case to date, he has been found by the presiding court to be unavailable, unfit, or immune to prosecution.[37]
The Subcommittee investigation has determined that Riggs served as a long-standing personal banker for Mr. Pinochet and deliberately assisted him in the concealment and movement of his funds while he was under investigation and the subject of a world-wide court order freezing his assets. The Subcommittee investigation found that, among other actions, Riggs opened multiple accounts for Mr. Pinochet with the knowledge and support of the bank’s leadership; accepted millions of dollars in deposits from him with no serious inquiry into the source of his wealth; set up offshore shell corporations and opened accounts in the names of those corporations to disguise Mr. Pinochet’s ownership of the account funds; altered the names of his personal account to disguise his ownership; secretly transferred $1.6 million from London to the United States while Mr. Pinochet was in detention and under court order; conducted transactions through Riggs’ own concentration accounts to hide Mr. Pinochet’s involvement in some cash transactions; and delivered over $1.9 million in four batches of cashiers checks to Mr. Pinochet in Chile to enable him to obtain substantial cash payments in that country. The Subcommittee investigation also determined that Riggs Bank concealed the existence of the Pinochet accounts from OCC bank examiners for two years, resisted OCC requests for information, failed to identify or report suspicious account activity, and closed the accounts only after a detailed OCC examination in 2002.
The Pinochet Relationship. The evidence uncovered by the Subcommittee indicates that Mr. Pinochet was a Riggs customer for at least eight years,[38] with multiple bank accounts, investments, and certificates of deposit (CDs) under his control. His total deposits at Riggs varied over the years from about $4 to $8 million.
The evidence shows that two Riggs employees were primarily responsible for handling the Pinochet accounts on a day-to-day basis. Carol Thompson, senior vice president for Latin America in the Embassy Banking Division, met with Mr. Pinochet twice each year, and spoke directly with him on at least a quarterly basis.[39] Fernando Baqueiro, Managing Director for Latin America in the International Private Banking Department, also handled the accounts but has indicated having much less direct contact with Mr. Pinochet.[40] Both reported to the head of the International Banking Group.
Evidence obtained by the Subcommittee indicates that senior Riggs officials actively sought the Pinochet accounts. In separate interviews, Riggs personnel interviewed by the Subcommittee all agreed that a delegation of senior Riggs officials visited several Latin American countries, including Chile, met with Mr. Pinochet, and explicitly asked Mr. Pinochet to open an account with Riggs. They disagree, however, as to exactly which Riggs officials went on the trip and who made the actual account solicitation when speaking with Mr. Pinochet.[41]
Establishment of Two Offshore Shell Corporations. In July 1996, about 18 months after Riggs opened a personal account for Mr. Pinochet, a detailed indictment accusing Mr. Pinochet of crimes against humanity was filed in Spain.[42] In 1996, and again in 1998, Riggs helped Mr. Pinochet set up two offshore shell corporations in the Bahamas, Ashburton Company Ltd. and Althorp Investment Co., Ltd. Neither company had any employees or physical offices, but were listed as the nominal owners of Riggs bank accounts and CDs that benefitted Mr. Pinochet and his family.
Riggs Bank & Trust Co. (Bahamas) Ltd., a Riggs subsidiary in the Bahamas with authority to open bank accounts and establish trusts in that country, established the companies.[43] Ashburton was incorporated first, in or around April 1996.[44] The nominal owner of the company was the Ashburton Trust, which Riggs helped establish in the Bahamas in May 1996.[45] The trustee of the Ashburton Trust is Riggs Bank & Trust Co. (Bahamas) Ltd.; the settlors are Mr. and Mrs. Pinochet; and the trust beneficiaries are their five children. Riggs personnel were named as the officers and directors of Ashburton, so that Mr. Pinochet’s name never appeared on the incorporation papers. Riggs incorporated the second offshore shell corporation, Althorp Investment Co., Ltd., in February 1998, using a similar structure.[46]
Multiple Accounts. From 1994 until 2002, Riggs opened at least three personal accounts for Mr. Pinochet, three more in the names of his offshore shell corporations, Ashburton and Althorp, and issued various certificates of deposit (CDs). Some of these accounts were at Riggs Bank in the United States; others were at Riggs Bank Europe, Ltd. in London, and Riggs produced varying amounts of documentation for each. Much of the documentation provided to the Subcommittee related to the Pinochet accounts in the United States; relatively little related to the accounts in London. According to an OCC analysis, in 2000, the Pinochet accounts were the fourth largest in Riggs’ International Private Banking Department.[47] After a targeted examination of these accounts by the OCC in 2002, all of his accounts were closed.
Personal Accounts. The three personal accounts at Riggs opened under the name of Augusto Pinochet Ugarte and his wife were as follows.
(1) Account No. 76-750-393, a personal money market account, was opened at Riggs in the United States in December 1994, and closed on March 25, 1999.[48] Over five years, the account balance fluctuated between about $50,000 and $1.2 million.[49] The Pinochet Embassy account manager told the Subcommittee that the bank closed this account after a Mexican newspaper obtained a monthly bank statement and published the account number.[50] The account was then closed and the funds transferred to a newly opened personal account, described next.
(2) Account No. 76-835-282, a personal money market account, was opened at Riggs in the United States, on March 24, 1999, with funds from the closed account. Over the next three years, the account balance fluctuated between about $20,000 and $550,000.[51] This account was closed in August 2002.
(3) Account No. 25-005-393, a personal checking account, was opened at Riggs in London on an unknown date and, in April 1997, was converted to a personal NOW account, Account No. 74-041-013. The NOW account was closed in May 2000.[52] From 1997 until 2000, the account balance fluctuated between about $40,000 and $1.1 million.[53] In 2000, when the account closed, funds were apparently transferred to a newly opened account at Riggs in the United States under the name of the Pinochet shell corporation, Althorp Investment, Ltd.
Corporate Accounts. Riggs opened several bank and investment accounts in the nameofAshburton and Althorp, and issued numerous 90-day certificates of deposit. Based upon theevidence reviewed by the Subcommittee, the key Riggs accounts opened in the name of Mr.Pinochet's two offshore shell corporations were as follows.
(1) Account No. 02121401, later changed to Account No. 64-0041-01-8, was a corporateinvestment management account for Ashburton.[54] It was opened at Riggs in the UnitedStates on an unknown date in 1996. This account was the largest Pinochet account and, inJuly 2002, contained at least $4.5 million.[55] Riggs actively managed the funds in thisaccount, making numerous securities sales. It was closed in August 2002.
(2) Account No. 76-715-547, a corporate money market account for Ashburton, wasopened at Riggs in the United States in May 1996.[56] From 1997 to 2002, the accountbalance fluctuated between about $4,000 and $1.1 million.[57] Although the Subcommitteewas not given specific account closing documentation, other evidence indicates that thisaccount was closed in August 2002.
(3) Account No. 76-835-493 was a corporate money market account that was opened in2000, in the name of "Ashburton Company, Ltd. #2," but then changed in 2001, to"Althorp Investment Co. Ltd.," Mr. Pinochet's other offshore shell corporation.[58] Theaccount was opened at Riggs in the United States in May 2000, with funds transferred fromMr. Pinochet's personal NOW account at Riggs in London.[59] From 2000 to 2002, theaccount balance fluctuated between about $200,000 and $950,000.[60] This account closedin August 2002.
(4) Riggs issued seven CDs in the name of Ashburton. Each CD was funded with $1million, was allowed to mature, and the funds used to buy a new $1 million CD. The firstCD was issued in 1997, and the last in 1998, which was then repeatedly renewed.[61] InOctober 2001, about $500,000 was withdrawn from the then existing CD and credited tothe Ashburton money market account, Account No. 76-715-547.[62] This CD matured inAugust 2002, and the remaining $493,000 plus interest was paid into the Ashburton moneymarket account which closed soon after.[63]
(5) A Riggs CD was also issued in the name of Althorp at Riggs in London in April 1998,for £1 million British pounds.[64] Documents variously refer to it as either Account No. 17-172-204 or Account 74-377-015. The CD was renewed for three 90-day periods. OnMarch 26, 1999, prior to its maturity date, the CD was "broken,"[65] and funds totaling$1,619,500 were transferred to a newly issued CD for Althorp at Riggs in the UnitedStates, described below.[66]
(6) The U.S. dollar CD for Althorp, Account No. 81-442-002, was issued by Riggs in theUnited States on March 26, 1999, with funds from the London CD described above. ThisCD was automatically renewed at 90-day intervals. It was initially funded with $1.6million, but $500,000 was withdrawn on May 15, 2001, and credited to the Althorp moneymarket account, Account No. 76-835-493. On April 5, 2002, another $500,000 waswithdrawn and credited to Mr. Pinochet's personal money market account, Account No.76-835-282. In June, the CD was renewed for another 90-day period with $619,500.[67] Although the Subcommittee was not given documentation showing when this CDterminated, Riggs has indicated that all Pinochet-related accounts were closed in July orAugust 2002.[68]
Know Your Customer Documentation. Conducting due diligence reviews ofprospective clients is a key safeguard against money laundering. This "know your customer"(KYC) requirement primarily entails compiling and verifying background information on newand existing customers to guard against money laundering. The KYC information compiled byRiggs for the accounts controlled by Mr. Pinochet, however, was clearly deficient.
Over the years, Riggs has issued strong policy statements requiring detailed KYCinformation for its client accounts. For example, its 2000 BSA Compliance Program states:
"Riggs Bank will conduct business only with individuals, companies, trusts (beneficialowners) and grantors/power holders of such trusts that we know to be of good reputationand, through proper and thorough due diligence, we know to have accumulated their wealththrough legitimate and honorable means. Riggs will not accept as a customer anyindividual, company or trust relationship whom we have any reason whatsoever to believehas been convicted of any crime involving the misappropriation of funds or the use oftrafficking of narcotics, or narcotics related material, or money laundering, or has obtainedfunds through illegal or illicit means. Riggs requires that thoroughly reviewed acorroborated information be provided to Riggs in order to make the determination ofwhether to accept an individual as a Riggs client."[69]
This statement is followed by policies and procedures for compiling KYC information. Riggsalso has a detailed KYC compliance manual which states, inter alia, "[W]e will do business onlywith individuals and organizations we believe to be of sound character and good reputation."[70]
Contrary to its KYC policy, however, Riggs did not conduct "thorough due diligence" toensure that Mr. Pinochet had accumulated his wealth "through legitimate and honorable means"nor did the bank obtain "thoroughly corroborated information" from him. For example, theearliest Pincohet account known to the Subcommittee is the personal account opened in theUnited States in December 1994. Riggs did not produce any KYC documentation related to theopening of this account, which had been solicited by the most senior leadership in the bank.
Riggs did produce, however, three KYC client profiles prepared during 1998, 1999, and2002. The earliest of these KYC documents is a 1998 "Know Your Customer Client Profile" ona "Riggs & Co." form for Ashburton Company Ltd.[71] This form has an elaborate set of questionssoliciting information about the client's name, address, OFAC status, related accounts, source offunds, background, existing assets, product needs, expected account activity, references, andstatus as a "High Profile" client. It also includes a checklist for required KYC documentation.While the KYC form solicits useful information to evaluate a client's money laundering risk, notall questions are answered and the provided information is brief, incomplete, and, at times,misleading.
The 1998 client profile appears to have been prepared for an existing Ashburton moneymarket account opened two years earlier in May 1996. The profile never identifies Mr. Pinochetas Ashburton's beneficial owner, stating instead that the owner's name is "Kept in Vault." Theprofile states that the owner has been an "[e]xisting [c]ustomer since 1985," has an estimatedcurrent annual income of $150,000-$200,000, and an estimated personal net worth of $50 to$100 million. It also states: "Client is a private investment company domiciled in the Bahamasused as a vehicle to manage the investment needs of beneficial owner, now a retired professional,who achieved much success in his career and accumulated wealth during his lifetime forretirement in an orderly way."
The profile provides the following for the source of wealth and source of funds in theaccount: "High paying position in investment income. Family wealth. ... High paying positionin Public Sector for many years. Investment Income." When asked to provide the "source usedto verify" this information, the response is: "Position and wealth are a matter of publicknowledge."
The profile states at one point that the client has $5.3 million with Riggs, and at anotherpoint $6.3 million, with another $1-2 million "expected." The chart requesting a list of "relatedaccounts " is marked "N/A" and no accounts are listed, even though Mr. Pinochet then had threeother accounts and two CDs at Riggs.
The form is signed by three Riggs officials, a private banking account officer FernandoBaquiero, a representative of Sean Terry, then head of International Banking, and a third"supervising officer" whose signature is illegible.
The 1998 profile never discloses that the Ashburton owner is a senior foreign politicalfigure and former head of state. It never mentions long-standing and ongoing controversies overthe sources of his wealth, including allegations of corruption, drug trafficking, and arms sales.The profile also fails to mention pending legal actions against the account's beneficial owner,including a 1996 indictment filed in Spain alleging his involvement with crimes againsthumanity.
Riggs also produced a Riggs & Co. "Know Your Customer Client Profile" for AlthorpInvestment Ltd.[72] This profile was completed in May 1999. Althorp had been incorporated ayear earlier, in April 1998, and then had a CD at Riggs in London, worth £1 million.
This 1999 profile never identifies Mr. Pinochet as the owner of Althorp. Instead, itdescribes him as an "existing client" who "is retired." It states: "He was a senior member of hisgovernment and had a long relationship with Riggs in this capacity. This trust was establishedfor grandchildren." The profile describes the source of funds in the account as "PersonalInvestments" and describes the source of wealth as: "Family and salary." When asked about thesource used to verify this information, the response states: "Personal visits."
The profile estimates the owner's current annual income at $100,000, and his net worth at$5 million. The chart requesting a list of "related accounts " is, again, left blank, although theprofile states at another point: "Beneficial owner has other investment company with Riggs."The profile is signed by Sean Terry and an illegible signature.
Like the 1998 profile, the 1999 client profile makes no reference to Mr. Pinochet's status asa controversial political figure. Nor does it mention the proliferating litigation pending againsthim, including a 1998 world-wide attachment order in Spain seeking to freeze his bank accounts.The 1998 and 1999 profiles are the only KYC information produced by Riggs for the accountsheld by the two offshore shell corporations.
In 2001, Riggs Bank prepared a list of the accounts related to Mr. Pinochet as of May 2nd,and another list as of September 12th.[73] It is unclear whether these lists were prepared as KYCdocuments or for another purpose. Both are written in Spanish, and the name "Pinochet" appearsin handwriting at the top of the September list.[74] Both lists identify nearly $8million in assets,including a personal account "in Washington" with about $23,000; three Ashburton accounts(including one CD) with nearly $6 million; and two Althorp accounts (including one CD) with acombined total of about $1.9 million. These listings establish that the bank was aware of thevarious accounts controlled by Mr. Pinochet.
Finally, Riggs provided a "KYC Profile" prepared by Riggs & Co. in March 2002, for Mr.Pinochet's personal money market account.[75] This profile notes that theaccount had beenopened three years earlier, in March 1999. It marks the client as a "High Profile Customer," andstates that a memorandum is attached, although none was provided to the Subcommittee. At alater point, the profile states: "Additional information on file with Group Head." The form alsostates that a list of all related accounts is held in the "Vault."
The profile states that the Pinochet relationship came to the International Private BankingDepartment "though Riggs Embassy Division due to our close professional relationship with theChilean Embassy in the US." It describes Mr. Pinochet as a "retired Army General," and saysthe source of his initial wealth was "profits & dividends from several business[es] familyowned." It states that the source of his current income is "investment income, rental income, andpension fund payments from previous posts." It estimates his annual income at $300,000 to$500,000, and leaves blank his estimated net worth. It predicts wire transfers of up to $250,000,but an average account balance of only $20,000, suggesting an expectation that the accountwould be used as a quick pass through for large sums.
The form is signed by Fernando Baqueiro in the International Private Banking Department,Sean Terry, then head of International Banking, and Richard Dunbar, Chief Operating Officer ofthe bank.
As with the earlier profiles, this 2002 profile contains no reference to or acknowledgmentof the ongoing controversies and litigation associating Mr. Pinochet with human rights abuses,corruption, arms sales and drug trafficking. It makes no reference to attachment proceedings thattook place the prior year, in which the Bermuda government froze certain assets belonging toMr. Pinochet pursuant to a Spanish court order - even though, as explained further below, seniorRiggs officials obtained a memorandum summarizing those proceedings from outside legalcounsel in May 2001.
In 2002, Riggs created for the first time a personal KYC client profile for Mr. Pinochet andattempted to document the sources of his wealth. In an interview, the Embassy Banking accountmanager who handled the Pinochet accounts told the Subcommittee that while she had reviewedextensive financial documentation in previous meetings with Mr. Pinochet, she did not collectcopies of this documentation until 2002, when she assembled a number of materials for the 2002client profile.[76] These materials included his Chilean tax returns from1998-2001, indicating anannual income of about $90,000 per year,[77] an unsubstantiated chartsummarizing certain traveland commissions allegedly owed to Mr. Pinochet,[78] and two formalstatements by Mr. Pinochet,dated 1973 and 1989, in which he attested to his own assets.[79] The EmbassyBanking accountmanager told the Subcommittee staff that Mr. Pinochet had also realized significant gains in theChilean stock market, but did not substantiate these gains in the 2002 KYC profile.[80] When theOCC reviewed the assembled documentation as part of its 2002 examination of the Pinochetaccounts, it determined that the information was insufficient to establish the source of Mr.Pinochet's wealth and noted that Mr. Lund from Riggs had agreed with this assessment.[81]
Evading Detection. In addition to opening multiple accounts for Mr. Pinochet in theUnited States and London, Riggs took several actions consistent with helping Mr. Pinochetevade a court order attempting to freeze his bank accounts and escape notice by lawenforcement.
In October 1998, a Spanish magistrate issued two international arrest warrants for Mr.Pinochet for murder, torture, hostage-taking, and genocide.[82] On October 17,1998, pursuant tothose warrants, Mr. Pinochet was arrested at a London hospital where he was recuperating fromback surgery. Months of litigation ensued in both Spanish and British courts.
Among other actions, a Spanish magistrate issued an attachment order in October 1998,against all bank accounts held directly or indirectly by Mr. Pinochet, his family members, orthird parties in any country.[83] On November 5, 1998, Spain's highest criminalcourt, theAudiencia Nacional, affirmed criminal jurisdiction over Mr. Pinochet, and on December 10,1998, ratified the attachment order against Pinochet bank accounts.[84] In theUnited Kingdom, onNovember 25, 1998, the British Law Lords denied Mr. Pinochet's claim of diplomatic immunityto prosecution, then set aside that determination on December 17, 1998.[85] OnMarch 24, 1999,the Law Lords authorized an extradition hearing to determine whether Mr. Pinochet should betransferred to Spain.[86]
Two days later, on March 26, 1999, Riggs allowed Mr. Pinochet to prematurely terminatethe £1 million CD held in the name of Althorp at Riggs in London, and transfer the funds,totaling $1.6 million in U.S. dollars, to a new CD in the United States.[87]Riggs did not file anysuspicious activity reports that would have alerted British or U.S. law enforcement to theexistence of the Pinochet funds.[88]
In March 2000, the British Home Secretary determined that Mr. Pinochet was unfit to standtrial due to poor health and terminated the pending extradition proceedings.[89]Mr. Pinochetimmediately departed for Chile, having spent more than18 months under house arrest. Later inMarch, senior Riggs officials and Embassy account manager Carol Thompson traveled to Chileas part of a larger trip to visit Riggs clients in South America and conduct bank business.[90]During this trip, the senior Riggs officials met with Mr. Pinochet. It is difficult to believe thatRiggs top officials would have been unaware of Mr. Pinochet's recent detention and legalproceedings when they met with him so soon after he had left England and returned to Chile.
In April 2000, Chilean lawyers filed suit in Chile to remove Mr. Pinochet's immunity toprosecution due to his status as a Senator.[91] In May 2000, as litigationcontinued in the Chileancourts, Riggs closed the final Pinochet account in London and transferred the remaining funds toa newly-opened Ashburton account at Riggs Bank in the United States.[92] Theevidence indicatesthat senior Riggs officials, including the general counsel, were informed of and agreed to thistransfer.[93] Again, Riggs failed to file any suspicious activity report with anyoffice of lawenforcement.
Courts continued to consider legal action against Mr. Pinochet. In August 2000, a Chileanappellate court upheld a lower court decision eliminating his immunity from prosecution, and onDecember 1, 2000, a Chilean judge indicted Mr. Pinochet for human rights violations.[94]
On December 10, 2000, a British newspaper reported that Mr. Pinochet had over $1 millionin a bank account at Riggs in the United States.[95] In late December or earlyJanuary 2001, Riggsaltered the official names on the personal account controlled by Mr. Pinochet in the UnitedStates, changing the names from "Augusto Pinochet Ugarte & Lucia Hiriart de Pinochet" to"L.Hiriart &/or A. Ugarte."[96] By changing the official account names in thismanner, Riggsensured that any manual or electronic search for the name "Pinochet" would not identify anyaccounts at the bank.
On January 29, 2001, Mr. Pinochet was placed under house arrest in Chile.[97] On May 15,2001, Bermuda officials announced that they had carried out an asset seizure in response to theSpanish attachment order and frozen accounts belonging to Mr. Pinochet in a Bermudasubsidiary of Standard Life Assurance.[98] In response, Pinochet lawyers werequoted in the newsmedia as saying that Pinochet "has no bank accounts outside Chile."[99]
A week later, on May 21, 2001, a lawyer at Fulbright & Jaworski provided a memorandumto Steven Pfeiffer, a senior partner at the law firm, about the international legal efforts to freezeMr. Pinochet's bank accounts.[100] Mr. Pfeiffer was both a senior partner atFulbright & Jaworskiand a long-time member of the Riggs National Corporation Board of Directors. Thememorandum given to him by an associate describes the Spanish attachment order, some of thepending legal actions against Mr. Pinochet, and a pending indictment listing "thousands ofpeople who were assassinated, tortured or disappeared during Mr. Pinochet's tenure as presidentof Chile." Attached to the memorandum were eleven news articles, from 1998 to 2001,discussing Mr. Pinochet, several of which alleged his involvement with corruption, narcotics,arms sales, and other misconduct. One of the articles quoted a Pinochet attorney denying theexistence of Pinochet bank accounts in other countries.[101]
On the same day, Mr. Pfeiffer forwarded the memorandum and news articles to two seniorRiggs officials, the general counsel and head of the International Banking Group. He includedhis own memorandum which began: "As requested by Ray last Friday, over the week-end wereviewed certain online public news sources for articles that address the source of GeneralAugusto Pinochet's wealth and/or attempts to freeze and/or seize General Pinochet's assets."[102]The memorandum stated that, while the searches did not uncover much information on thesource of Mr. Pinochet's wealth, they did identify articles discussing "demands by `leadingpolitical figures' in Chile to investigate the source of the Pinochet family's fortune" and effortsby the Spanish judge "to search for assets of Pinochet in the United States, Switzerland andLuxembourg."
Mr. Pfeiffer told the Subcommittee staff that he had been unaware of the Pinochetaccounts prior to receiving a request from the bank for this memorandum.[103]He said that he didnot raise any concerns with the bank's having these accounts, because he assumed the bank hadperformed the proper due diligence before accepting Mr. Pinochet as a client. The memorandahe provided the bank demonstrate that senior Riggs officials were fully aware of the Pinochetattachment order and seizure actions taking place in other countries, the questions about thesource of Mr. Pinochet's wealth, and the allegations of his involvement with a variety of crimes.They also suggest that the bank was analyzing its own legal obligations.
Mr. Pfeiffer told the Subcommittee staff that he was asked by Riggs to prepare a secondmemorandum on the Pinochet accounts a year later, in June 2002.[104] Heindicated that the bankwas considering closing the accounts and wanted to know whether it could send the funds to Mr.Pinochet directly or, due to the attachment proceedings, had to send the funds to a court or lawenforcement entity. Mr. Pfeiffer declined to produce a copy of this second memorandum on theground that it was protected from disclosure by the attorney-client privilege. Riggs ultimatelydecided to close the accounts and send the funds directly to Mr. Pinochet in 2002. Riggs, again,took no action to disclose the Pinochet accounts to any court or office of law enforcement.
Issuance of Cashiers Checks. In addition to assisting Mr. Pinochet evade legalproceedings to attach his bank accounts, Riggs took questionable actions over a two-year period,2000 to 2002, to help him utilize the funds in his U.S. bank accounts while in Chile.
On August 18, 2000, using funds from Pinochet accounts in the United States, Riggs issuedeight, sequentially numbered cashiers checks payable to Augusto Pinochet, each in the amountof $50,000, for a total of $400,000. [105] According to the OCC, Riggs thenpaid for the privatebanker who sometimes handled the Pinochet relationship to travel to Chile, so that he could handdeliver the checks to Mr. Pinochet.[106] Mr. Pinochet cashed these checks,$50,000 at a time, atseveral banks over the course of several months.[107] By sending him thesecashiers checks, Riggsenabled Mr. Pinochet to obtain substantial cash payments while in Chile.
On May 15, 2001, Riggs did it again. It used Pinochet funds to issue ten, sequentiallynumbered cashiers checks, each in the amount of $50,000, for a total of $500,000.[108] Thesechecks were made payable to Maria Hiriart and/or Augusto P. Ugarte. They were sent byovernight delivery to Chile.[109] Mr. Pinochet, again, cashed the checks atseveral banks over thecourse of several months.[110] Unlike the cashiers checks issued in 2000,however, these cashierschecks drew their funds, not from a Pinochet account directly, but from Riggs' ownconcentration account.[111] This action meant that Mr. Pinochet could cashthe checks without fearthat they could be traced back to one of his accounts at Riggs.
On October 11, 2001, Riggs repeated the action a third time, issuing ten sequentiallynumbered $50,000 cashiers checks, drawn on Riggs' own concentration account, for a total of$500,000.[112] Made payable to Maria Hiriart and/or Augusto P. Ugarte,these checks were, again,sent by overnight mail to Mr. Pinochet in Chile. Mr. Pinochet, again, cashed them over thecourse of several months.[113]
On April 8, 2002, Riggs performed the same service one last time, mailing ten sequentiallynumbered $50,000 cashiers checks to Mr. Pinochet in Chile.[114] Thesechecks were made payableto L. Hiriart and/or A.P. Ugarte, and totaled $500,000. They were drawn directly from thePinochet accounts rather than from the Riggs concentration account. Mr. Pinochet cashed themover several months.
Altogether, Riggs transferred $1.9 million to Mr. Pinochet in Chile through four sets ofcashiers checks. When asked why, on each occasion, it had supplied multiple cashiers checks inidentical amounts instead of a single check for the full amount, the key Riggs employee told theSubcommittee that Mr. Pinochet had requested this approach so that he could distribute thechecks to his descendants before his death.[115] Analysis of the clearedchecks, however, showsthat Mr. Pinochet personally signed and cashed them over several months, a pattern equallyconsistent with his using the funds for his own expenses.
When asked why Riggs didn't simply wire transfer the funds to a Pinochet account inChile, which would have been faster, less expensive, and more secure than physicallytransporting checks to Chile, Riggs personnel were unable to provide a satisfactoryexplanation.[116] When asked why Riggs had debited some of the cashierschecks from its ownconcentration account instead of directly from Mr. Pinochet's accounts, Riggs personnelapparently told OCC examiners that the bank often handled cashiers checks in this manner toprotect client "confidentiality."[117] When further pressed by the OCC aboutthis action, Riggsinformed the examiners that it "would immediately cease the practice."[118]
Concealment and Resistance to OCC Oversight. Riggs did not, at any time, volunteerinformation about the Pinochet accounts either to a bank examiner or to law enforcement.
In fact, Riggs appeared to take affirmative steps to hide the Pinochet relationship frombank examiners. In July 2000, for example, when pursuant to a routine anti-money launderingexamination the OCC requested from Riggs a list of accounts controlled by foreign politicalfigures, Riggs omitted the Pinochet accounts from that list.[119] In 2001, anOCC bank examinerhappened to review the Althorp account as part of a routine sampling of KYC data in 17accounts at the International Private Banking Department. According to the handwritten notes ofthe examiner, when the OCC asked about Althorp's beneficial owner, Riggs personnelresponded that the owner was "a publicly known figure" in Chile; his Chilean family members"were diplomats," the account came from "Embassy [Banking]," the family members were"landowners" with "vineyards," and the Riggs Chairman of the Board "knows" the beneficialowner.[120] Riggs never disclosed that the beneficial owner was the formerhead of state, Mr.Pinochet.
The OCC finally discovered the Pinochet accounts in the spring of 2002, during anexamination conducted at multiple banks to test existing policies and procedures to detect andreport terrorist financing. Riggs was one of more than two dozen banks chosen to undergo thistargeted examination. It was during this examination that OCC examiners came across codedreferences in a Riggs' log of cashiers checks, asked Riggs for an explanation, and learned of thePinochet accounts.[121]
When OCC examiners met with Riggs personnel to obtain additional information aboutthese accounts, Riggs personnel initially resisted cooperating with OCC requests. For example,according to an OCC summary of the meeting, a representative from the Riggs legal departmentasked why the OCC "would need copies of documents from the Pinochet accounts," expressedconcerns about "the confidentiality of the information," and indicated he "did not believe that[the OCC] needed copies of `any' information."[122] The Embassy Bankingaccount managerasked the OCC to "guarantee her that no information be provided to any other agency." Whenshe began to hand the OCC a document, the Riggs legal representative prevented her fromactually doing so. About a week later, the OCC met with Riggs again and informed the bankthat it was undertaking a targeted examination of the Pinochet accounts.[123]At that meeting,Riggs committed to fully cooperating with the OCC and providing all requested information.
OCC examination personnel then raised numerous questions about the Pinochet accounts.One examiner wrote:
[I] remain puzzled by the entire relationship with someone of this calibre by Riggs. Theapparent secrecy is also puzzling. ... Even a casual interpretation of nominal adher[e]nce to any typeof KYC [know-your-customer] efforts would leave at a loss why Riggs would put themselves at suchrisk by dealing with him. ... Even if a nominal amount of the allegations of the atrocities, human rightsviolations, drug and arms trafficking, as well as assas[s]ination stories are true, the risk to the bankwould be high ... if Riggs relationship were known. Perhaps this is the reason for the secrecy. ... Histotal control over the Chilean economy adds more questions as to his source of funds. Coupled withthe potential of funds derived from possible terror and personal funds of the thousands of missingpeople, his role in the dissolution of the economic structure in Chile during his extended term surelyopened the door to possible sources of self enrichment and wealth. ... If the general public can accesssuch information on Pinochet, then so could Riggs. ... The threshold for filing a SAR [suspiciousactivity report] is only `suspicious activity' and this surely meets the test. ... It is troubling to me thateven the nominal facts known by me, would surface many questions that management must also have.The hesitancy to file [a suspicious activity report] is significant and cannot be lightly dismissed."[124]
The OCC directed Riggs to file a suspicious activity report (SAR) about the Pinochet accountsso that law enforcement would be aware of them. Riggs complied in July 2002. The OCC consideredthe report so deficient, however, that it filed its own SAR soon after.
Role of Board and Officers of Pinochet Accounts. Information reviewed by theSubcommittee indicates that key Riggs Board members and senior officers were well aware of thePinochet accounts.
Senior bank officials had been instrumental in bringing the first Pinochet account to the bankin late 1994. The account manager said that she sometimes spoke directly to Mr. Allbritton about thePinochet accounts. In 2000, key Riggs Board members and bank officers traveled to Chile to meet withclients, including Mr. Pinochet who had been released from house arrest in the United Kingdomweeks, if not days, before the meeting. In 2001, a Riggs Board member informed senior officials atthe bank about the Pinochet attachment order, pending legal actions against Mr. Pinochet, andaccusations concerning his involvement with wrongdoing.[125]
In 2002, when the OCC began a targeted examination of the Pinochet accounts, senior Riggsofficers who were also Board members attended some meetings with OCC staff. One Riggs officertold an OCC examiner that, "Mr. Pinochet has a relationship with the Chairman of Riggs."[126] During the course of the examination, the head of the International BankingGroup wrote to Riggs' then top anti-money laundering officer:
"Riggs Bank Legal Affairs Division and Compliance Division have been aware of allactivities relating to these accounts. At no time has the International Group acted on this accountwithout the express consent of both the Legal Affairs and Compliance Divisions."[127]
In mid-2002, a Riggs board member provided a requested legal memorandum to the bank onwhether it could close the Pinochet accounts without incurring any liability from the client.
On October 15, 2002, the OCC presented its findings on the Pinochet accounts to the RiggsBoard of Directors. According to OCC personnel present at the meeting, the Board reacted withresentment over how the OCC had handled the matter.[128] According to theOCC, Ms. Allbritton, a Board member, complained that the agency had effectively forced the bank toclose the Pinochet accounts.[129] In July and August 2002, Riggs closed thePinochet accounts.
C. Equatorial Guinea
Finding (2): Turning a Blind Eye. Riggs Bank managed more than 60 accounts andcertificates of deposit for Equatorial Guinea, its officials, and their family members, with little or noattention to the bank's anti-money laundering obligations, turned a blind eye to evidence suggesting thebank was handling the proceeds of foreign corruption, and allowed numerous suspicious transactionsto take place without notifying law enforcement.
In 1995, Riggs Bank opened its first Embassy accounts for Equatorial Guinea, a small countryon the west coast of Africa. Over the next eight years, the bank opened nearly 50 additional accountsand a dozen certificates of deposit for not only the government of Equatorial Guinea (E.G.), but alsoa host of E.G. senior government officials and their family members. By 2003, the E.G. account hadbecome the bank's largest single relationship, with balances and outstanding loans that togetherapproached $700 million.[130]
The Subcommittee investigation has determined that Riggs Bank serviced the E.G. accountswith little or no attention to the bank's anti-money laundering obligations, turned a blind eye toevidence suggesting the bank was handling the proceeds of foreign corruption, and allowed numeroussuspicious transactions to take place without notifying law enforcement. The Subcommitteeinvestigation found that Riggs opened multiple personal accounts for the President of EquatorialGuinea, his wife and other relatives; helped establish offshore shell corporations for the E.G.president and his sons; accepted $13 million in cash deposits into accounts controlled by the E.G.President and his wife with few questions asked; allowed wire transfers withdrawing more than $35million from the E.G. account containing oil revenues for transfer to two unknown companies withaccounts in bak secrecy jurisdictions; and exercised such lax oversight over the E.G. account managerthat, among other misconduct, he was able to wire transfer more than $1 million in E.G. oil revenuesto an account he controlled at another bank. Riggs Bank failed to cooperate initially with theSubcommittee investigation of the E.G accounts, and closed the accounts only after numerous questionsraised concerns the bank was unable to resolve.
The Country of Equatorial Guinea. Equatorial Guinea is a West African country,composed of a mainland and five inhabited islands, with slightly less landmass than Maryland and apopulation of about 510,000.[131] Malabo, on the island of Bioko, is thecapital and largest city. Spanish and French are the official languages, but Bantu languages are alsospoken.
Equatorial Guinea was colonized by the Portugese in the late 1600s, ceded to Spain in 1778,and gained independence in the 1960s.[132 ] After a referendum andconstitutional convention, Francisco Macias Nguema was elected President of Equatorial Guinea in1968.[133] Macias subsequently abrogated the constitution, established asingle-party dictatorship, and declared himself President for life. His rule occasioned the death orexile of about one-third of the country's citizens.[134] In 1979, Macias wasoverthrown and executed by his nephew, Colonel Teodoro Obiang Nguema Mbasago.
Mr. Obiang declared himself President in his uncle's place. Twenty-five years later, he stillholds that position. While a new E.G. constitution was enacted in 1982, and single-party rule wasofficially ended in 1991, free and fair elections have not followed.[135] Inthe most recent election in December 2002, in which President Obiang claimed victory with 97% ofthe vote, the U.S. State Department described the proceedings as "marred by extensive fraud andintimidation."[136] President Obiang is also depicted as dominating the E.G.government. In the words of the U.S. State Department, he "names and dismisses cabinet members andjudges, ratifies treaties, leads the armed forces, and... appoints the governors."[137] A review of top E.G. officials over the past few years shows that many aremembers of the President's extended family.
The State Department has also been highly critical of the country's human rights abuses, use oftorture, and culture of corruption.[138] The IMF has also issued reportscritical of the country's lack of transparency and accountability on fiscal matters.[139] Corruption allegations are also commonplace in articles about EquatorialGuinea. For example, one recent U.S. publication wrote: "In 1998, according to the IMF, [the E.G.]government received $130 million in oil revenue, and Obiang simply pocketed $96 million of it.Although three of every four Equatoguineans suffer malnutrition, between 1997 and 2002, Obiangspent just over 1 percent of his budget on health, by far the lowest of the nine African countries theIMF surveyed. According to a 2002 State Department report, there is `little evidence that the country'soil wealth is being devoted to the public good.'"[140]
Despite its poor record on human rights, civil liberty, and democracy, Equatorial Guinea hasexperienced rapid economic growth during the last five years due to development of its oil resources.Since 1997, U.S. oil companies, including Amerada Hess, ChevronTexaco, ExxonMobil, andMarathon have made substantial investments in oil fields off the E.G. coast as well as in E.G.methanol and liquified natural gas plants. Equatorial Guinea has also become an important source ofoil for the United States.[141]
Diplomatic relations between Equatorial Guinea and the United States have varied over theyears. In 1995, the United States closed its embassy in Equatorial Guinea. Eight years later, in 2003,the United States agreed to re-establish this Embassy, reportedly at the urging of U.S. oil companiesdoing business in Equatorial Guinea. President Obiang professes to be a strong supporter of the UnitedStates and frequently travels to this country. His wife and children own real estate in Maryland,California, New York, and elsewhere.
Equatorial Guinea Relationship. The evidence shows that Equatorial Guinea has hada eight-year relationship with Riggs Bank and is associated with more than 60 accounts and Cds at thebank.
Equatorial Guinea opened its first accounts at Riggs Bank in 1995. The evidence indicatesthat over the following eight years, a single Riggs account manager in the Embassy BankingDivision, Simon Kareri, was primarily responsible for the E.G. accounts. Mr. Kareri alsohandled other Embassy accounts in Africa and the Caribbean. He reported to the head of theInternational Banking Group, Raymond Lund.
Multiple Accounts. Riggs opened numerous accounts for the E.G. government, itsofficials, and their family members. After a targeted examination of these accounts by the OCCin 2003 and 2004, it is the Subcommittee's understanding that all have been recently closed.These accounts can be generally categorized as follows.
(1) E.G. Oil Account.
One of the earliest and largest of the E.G. accounts, AccountNo.17-164-642, was opened in January 1996, as a standard business checking account in thename of the "Republica de Guinea Ecuatorial-Tesoreria General." Virtually all of thedeposits into this account were payments from oil companies doing business in EquatorialGuinea, primarily ExxonMobil Corporation and Marathon Oil Company. Most of thefunds were transferred out of this account to the Central Bank of Africa and used to payE.G. bills. Some funds were transferred directly from the oil account to pay for variousE.G. projects. This account often held tens of millions of dollars at a time. The accountsignatories were E.G. President Obiang; his son, Gabriel M Obiang Lima, E.G. Minister ofMines; and his nephew, Melchor Esono Edjo, E.G. Secretary of State for Treasury andBudget. Two signatures, one of which had to be from the President, were required towithdraw funds from this account.[142](2) E.G. Investment Accounts. The second largest E.G. account, Account No. 76-952-200, was a standard money market account linked to two Riggs investment accounts,Account Nos. 68-002-6010 and 68-002-6028.[143] Opened in December2001, these accountshad combined funds in 2003, of more than $300 million and at times as much as $500million. The money market account had the same three signatories as the E.G. oil account,but any one signature was sufficient to withdraw funds.[144] The two linkedinvestmentaccounts had only one required signatory, the E.G. President.[145]
(3) Other E.G. Government Accounts. Several other Riggs accounts and CDs were alsoopened in the name of the Republic of Equatorial Guinea. They included a CD for $40million, Account No. 81-710-0433, opened in May 2002;[146] a CD for $1million, AccountNo. 81-763-3375, opened in November 2002;[147] and a CD for $5 million,Account No. 81-217-905, opened in June 1996 and closed in March 1998.[148] Account No.25-711-327, achecking account, was opened in September 2003, in the name of the EG government, withloan proceeds intended to be used to purchase an airplane for the use of the E.G. President;at the end of 2003, its balances exceeded $9 million.[149] An account relatedto the E.G.shipping registry, Account No.17-201-044, was opened in 1996, and went inactive in 2001.A checking account, Account No.17-231-999, which was apparently used to pay E.G.debts, was closed in 1999.
(4) E.G. Embassy Accounts. Eight accounts were opened at Riggs in the name of the"Embassy of Equatorial Guinea." The earliest of these accounts was opened in 1996, andthe latest in 2002. Most of these accounts appear to have been used to pay Embassy bills,including utilities, telephone expenses, payrolls, and at least one land purchase of a$600,000 "chancery site." One account appears to have been set up, but rarely used, tomake currency investments in the Euro. Due to limited documentation, the Subcommitteecould not determine the purpose of several others, some of which may have contained theproceeds of Riggs loans to the Embassy. The Subcommittee was not given signatorydocumentation for these accounts, but the signatory may have been Teodoro Biyogo Nsue,E.G. Ambassador to the United States.[150]
(5) E.G. Student Accounts. Two accounts were opened in the name of the E.G.government and used to pay the expenses of E.G. students studying in the United States.The first account, Account No. 17-328-504, was opened in the name of "Republica deGuinea Ecuatorial-Cuenta Estudiantes MME." It was a corporate wholesale checkingaccount opened in March 2001. The account signatories were Cristobal Manana Ela, E.G.Minister of Mines & Energy; and a son of the E.G. President, Gabriel Nguema Lima, E.G.Secretary of State Mines & Energy.[151] This account had fluctuating balancesthat oftenexceeded $300,000. The second, Account No. 25-380-310, was opened in the name of"Republica de Guinea Ecuatorial-Fondo Especial para Becas." It was a business moneymarket account opened in May 2002, and the only signatory was the Riggs E.G. accountmanager, Simon Kareri.[152] This account was linked to a Riggs investmentaccount of thesame name, Account No. 68-002-6036. Both the special account and the investmentaccount had, at times, funds equal to or exceeding $1 million.[153]
(6) Otong Accounts. While E.G. President Obiang did not have any personal accountsatRiggs, he was the beneficial owner of one account and two CDs opened in the name of aBahamian offshore shell corporation, called Otong S.A., which was under his control andhad been established on his behalf with the assistance of Riggs. Account No. 76-863-013was a money market account, which was opened in September 1999, and had relativelyminor balances. The first CD was opened in June 2000, as Account No. 81-450-109; thesecond was opened in June 2002, as Account No. 81-723-162. In December 2002, the firstCD had a value exceeding $11.7 million, while the second CD had a value exceeding $4.4million.[154]
(7) Constancia Nsue Accounts. Five accounts and three CDs were opened in the nameofthe President's wife, Constancia Mangue Nsue. The earliest was opened in 1997, and thelatest in 2002. Account No. 24-383-122 was a personal checking account that receivedseveral large cash deposits, as well as a few payments from ExxonMobil oil companytotaling about $385,000. From 1998 until 2003, the account balance fluctuated widelybetween about $3,000 and $2.7 million.[155] Over time, about $2.8 millionwas withdrawnfrom this account and transferred to a CD in Ms. Nsue's name, Account No. 81-253-754.[156]Account No. 24-895-363 was a joint checking account with her brother, Teodoro BiyogoNsue, the E.G. Ambassador to the United States. From 2000 until 2003, this accountbalance fluctuated widely between $0 to about $670,000, and included some large cashpayments and wire transfers.[157] Account No. 25-475-010 was a moneymarket accountestablished in 2002 to receive rental payments of about $5,000 per month on a Marylandproperty owned by Ms. Nsue. Two money market accounts and two CDs were opened inthe name of Ms. Nsue on behalf of her teenage twin sons, Justo and Pastor Obiang. Themoney market accounts, Account Nos. 76-890-441 and 76-890-433, each had fluctuatingbalances of between about $600 and $270,000, and each periodically sent large sums fordeposit into CDs.[158] Each of the sons' CDs, in Account Nos. 81-585-919and 81-585-927,had a value at the end of 2002 of about $625,000.[159]
(8) Teodoro Nguema Obiang Accounts. While the E.G. President's eldest son, TeodoroNguema Obiang, the E.G. Ministry of Forestry, did not have any personal accounts atRiggs, he was the beneficial owner of three accounts opened in the name of companies hecontrolled. Two of these accounts were opened in the name of his California entertainmentcompany, TNO Entertainment LLC. The first, Account No. 76-889-555, was opened in2000 and closed in 2001, and the funds were transferred to Account 76-923-450, whichwas opened in 2001 and remained open in early 2004.[160] From 2001 to2003, the secondaccount had balances that fluctuated between about $17,000 and $11.6 million.[161] Thethird account, Account No. 25-380-038, was opened in the name of Awake Ltd., aBahamian offshore shell company that Riggs helped to establish. This money marketaccount, opened in 2002, saw virtually no account activity.[162]
(9) Teodoro Biyogo Nsue and Elena Mensa Accounts. Four accounts and two CDswereopened in the name of Teodoro Biyogo Nsue, the E.G. Ambassador to the United States, orhis wife, Elena Mensa, all with modest balances. A savings account, Account No. 25-595-370 was opened in the name of the Ambassador on behalf of his daughter, Candida Nsue,held minor balances, and showed little account activity. His wife also opened a savingsaccount on behalf of their daughter, Account No. 25-460-310. For herself, Ms. Mensaopened a personal checking account, Account No. 25-356-070, and a money marketaccount, Account No. 65-197-510, that closed in 2002. Ms. Mensa also had two CDs,Account Nos. 81-676-503 and 81-763-965, that were opened in 2001 and 2002.[163]
(10) Melchor Edjo Accounts. One account and two CDs were opened in the name ofMelchor Esono Edjo, Secretary of State for Treasury and Budget in Equatorial Guinea.Account No. 76-827-522, was a money market account. The two CDs, Account Nos. 81-502-490 and 81-764-159, were opened in 1999 and 2003, and together had an aggregatevalue of more than $183,000.
(11) Armengol Ondo Nguema Accounts. One account and one CD were opened in thename of Armengol Ondo Nguema, the E.G. President's brother and Director of NationalSecurity in Equatorial Guinea. Account No. 76-889-504 was a money market account,opened in 2000. From 2000 to 2003, the account balance fluctuated widely between about$3,000 and $775,000.[164] The CD, Account No. 81-657-484, was openedin June 2001, with$700,000 transferred from the money market account. At the end of 2002, it had a value ofslightly more than $700,000.[165] Two more accounts were opened in thename of hisdaughter, Maria Ondo Mangue (also known as Maria Luisa Mangue Ondo), who wasstudying in the United States. Account No. 25-460-986 was a savings account that wasopened in 2002 and closed in July 2003; Account No. 25-125-029 was a checking accountopened in 2001, with minor balances.
(12) Pastor Micha Ondo Bile Accounts. Two accounts and four CDs were opened inthename of Pastor Micha Ondo Bile, Minister of Foreign Affairs in Equatorial Guinea andone-time E.G. Ambassador to the United States. Account No. 24-203-160, a checkingaccount, and Account No. 76-787-356, a money market account, were both opened in1995. Of the four CDs, Account Nos. 81-519-794, 81-770-495, 81-815-876, and 81-405-228, one was opened in 1998, and the other three in 2003. The Subcommittee did not