Federal bank regulators are preparing to impose on Riggs Bank what could be the largest civil penalty ever against a financial institution for violations of anti-money-laundering laws, sources familiar with the discussions between Riggs and government officials said yesterday.
The fines being contemplated by regulators could top $25 million, the sources said. The penalty will be imposed for what the bank acknowledges have been years-long deficiencies in complying with the Bank Secrecy Act, which requires financial institutions to report suspicious activities to federal authorities.
Riggs expects to report tomorrow that it earned a profit for the first quarter of 2004. But the bank is expected to caution investors that fines that could be imposed by regulators any day could wipe out profit for the year. The fines themselves are expected to be announced after the earnings report comes out.
Last year Riggs National Corp., the holding company that owns the bank, reported profit of $979,000. It has not earned more than $25 million in a year since 1999.
When the bank reports its earnings, it also expects to announce key changes in management, including a decision to hire Lawrence Connell, a former Treasury Department adviser on privatization and banking reform in transitional economies and former chairman of the National Credit Union Administration.
Sources said that regulators so far are not planning to require the ouster of board members, including Joe L. Allbritton, the company's largest shareholder and the man who ran the bank nearly two decades before handing the reins to his son, Robert L. Allbritton, in 2001.
Joe Allbritton, who remains vice chairman of the board of the holding company, could still decide to step down on his own, sources said.
Robert Allbritton chairs the boards of the bank and its holding company. Directors on the bank's board also include Joe Allbritton's wife, Barbara B. Allbritton. Both boards are scheduled to meet today or tomorrow, sources said.
Riggs officials would not comment yesterday. Board members did not return telephone calls. Neither the Allbrittons nor their lawyer could be reached.
In imposing fines, the Office of the Comptroller of the Currency, Riggs's main federal banking regulator, and the Financial Crimes Enforcement Network, a law enforcement unit of Treasury, will cite the bank and its holding company for deficiencies in risk management and internal controls, sources said. The Federal Reserve Board, which regulates bank holding companies as well as a Riggs unit that engages in foreign transactions, will also cite the company for similar deficiencies, sources said.
The Bank Secrecy Act, which Congress strengthened after the Sept. 11, 2001, terrorist attacks, is intended to alert regulators and law enforcement officials to potential money laundering by bank customers. Money laundering is the use of complex transactions to hide the origin or destination of funds related to illegal activities such as drug smuggling or terrorist acts.
Regulators have warned the bank that they might impose fines on individual directors and executives. But sources yesterday said that, as of now, neither people running the bank nor its parent company will be cited individually.
The penalties and management changes would come as the FBI, bank regulators and three congressional committees continue to delve into Riggs's international banking relationships, particularly its two-decade role as chief banker for the Embassy of Saudi Arabia in Washington. That relationship, as well as other multimillion-dollar embassy accounts, ended in recent weeks as a result of the ongoing probe. Riggs says it terminated the relationship. The Saudis say they ended it.
Either way, friction stems from a review by investigators of the Saudi accounts for evidence of money laundering. Investigators have reached no conclusions about the reasons for series of layered transactions over several years in the embassy accounts, including the personal accounts of the Saudi ambassador, Prince Bandar bin Sultan, sources say.
