USA/Africa: Oil And Transparency

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United States Senate

Permanent Subcommittee on Investigations,

Committee on Governmental Affairs

Norm Coleman, Chairman; Carl Levin, Ranking Minority Member

Money Laundering and Foreign Corruption: Enforcement and Effectiveness of the Patriot Act Case Study Involving Riggs Bank

Report Prepared by the Minority Staff of the Permanent Subcommittee On Investigations

Released in Conjunction with the Permanent Subcommittee on Investigations' Hearing on July 15, 2004

July 14, 2004

http://govt-aff.senate.gov>

I. 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. ...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 ...

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.

...

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. ...

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.

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 "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. ...

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 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. ...

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.

... Both banks declined to provide the requested information, because the accounts had been opened at their foreign affiliates in Luxembourg or Spain. .... ...

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 di

rectives 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.

(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.


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1. Recent stories

CNN: Bank targeted over Pinochet funds


Bank targeted over Pinochet funds
From CNN Madrid Bureau Chief Al Goodman
Tuesday, July 27, 2004 Posted: 1851 GMT (0251 HKT)



Pinochet seized power in Chile in 1973 in a coup and ruled until 1990.

MADRID, Spain (CNN) -- A Spanish judge is being urged to charge a U.S. bank for concealing millions of dollars belonging to former Chilean dicator Augustus Pinochet despite a court order freezing his assets worldwide.

A Spanish lawyer representing alleged victims of Pinochet's regime made the request last week to Baltasar Garzon after a U.S. Senate report on July 15 concluded Riggs Bank had helped Pinochet "evade legal proceedings related to his Riggs bank accounts."

Judge Garzon in 1998 issued an arrest warrant for Pinochet, along with an order freezing his assets. He was expected to rule this week on the new request, said the lawyer, Juan Garces.

Garces told CNN that if Garzon agrees to proceed, it could result in the Spanish government formally asking the U.S. Department of Justice to press charges against Riggs Bank and its top executives allegedly involved in the money laundering.




Bank Investigated for Pinochet's Fraud


The Observer (London, UK)

The law is finally catching up with General Augusto Pinochet, the former Chilean dictator.

Having for years eluded justice on allegations of torture, murder and international terrorism, he will shortly be facing charges of corruption, tax evasion and the laundering of enormous profits from drug dealing and the privatisation of large swaths of the Chilean economy in the 1970s.

The reputation he carefully cultivated for financial probity which was trumpeted by his many supporters around the world - from Margaret Thatcher to Henry Kissinger - faces final demolition.

Revelations from the US Senate's Sub-Committee on Investigations this month about Pinochet's financial dealings will ensure this. They also make extremely unpleasant reading for the UK government, the British judiciary and the Bank of England.

While under arrest in a small house by a golf course in Surrey he was able to shuffle millions of pounds of his personal fortune through Riggs, a Washington-based bank with a branch in London.
In the past 10 days Riggs, which held accounts for other Pinochet family members, the Chilean army and the secret police, has been sold off for $779 million, a fraction of its former worth.

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September 11 means EVERYTHING to Chileans, as well.




From the film The Battle of Chile(First Run/Icarus Films)

Chile and the United States:
Declassified Documents Relating to the Military Coup, September 11, 1973

by Peter Kornbluh

September 11, 1998 marks the twenty-fifth anniversary of the military coup led by General Augusto Pinochet. The violent overthrow of the democratically-elected Popular Unity government of Salvador Allende changed the course of the country that Chilean poet Pablo Neruda described as "a long petal of sea, wine and snow"; because of CIA covert intervention in Chile, and the repressive character of General Pinochet's rule, the coup became the most notorious military takeover in the annals of Latin American history.

Revelations that President Richard Nixon had ordered the CIA to "make the economy scream" in Chile to "prevent Allende from coming to power or to unseat him," prompted a major scandal in the mid-1970s, and a major investigation by the U.S. Senate. Since the coup, however, few U.S. documents relating to Chile have been actually declassified- -until recently. Through Freedom of Information Act requests, and other avenues of declassification, the National Security Archive has been able to compile a collection of declassified records that shed light on events in Chile between 1970 and 1976. These documents include:

** Cables written by U.S. Ambassador Edward Korry after Allende's election, detailing conversations with President Eduardo Frei on how to block the president-elect from being inaugurated. The cables contain detailed descriptions and opinions on the various political forces in Chile, including the Chilean military, the Christian Democrat Party, and the U.S. business community.
** CIA memoranda and reports on "Project FUBELT"--the codename for covert operations to promote a military coup and undermine Allende's government. The documents, including minutes of meetings between Henry Kissinger and CIA officials, CIA cables to its Santiago station, and summaries of covert action in 1970, provide a clear paper trail to the decisions and operations against Allende's government
** National Security Council strategy papers which record efforts to "destabilize" Chile economically, and isolate Allende's government diplomatically, between 1970 and 1973.
** State Department and NSC memoranda and cables after the coup, providing evidence of human rights atrocities under the new military regime led by General Pinochet.
** FBI documents on Operation Condor--the state-sponsored terrorism of the Chilean secret police, DINA. The documents, including summaries of prison letters written by DINA agent Michael Townley, provide evidence on the carbombing assassination of Orlando Letelier and Ronni Moffitt in Washington D.C., and the murder of Chilean General Carlos Prats and his wife in Buenos Aires, among other operations.

CONTINUED...

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2. Good post.....thanks!

If there is any doubt about the criminality of the oil companies among other corporations, then this should clear it up:


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

They have a LOT of blood on their hands and should be locked up.

And if these corporation's attempts at legitimizing these activities by being permitted by law, their own armies of mercencaries to assist in their corrupt practices then this government MUST STOP this immediately and do more than just harden their resolve to firm up regulations. These are CRIMES like those of any crime family and MUST BE PROSECUTED in either our national or international courts!