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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