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

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Money Laundering and Foreign Corruption: Enforcement and Effectiveness of the Patriot Act Case Study Involving Riggs Bank Report United States Senate PERMANENT SUBCOMMITTEE ON INVESTIGATIONS Committee on Governmental Affairs Norm Coleman, Chairman Carl Levin, Ranking Minority Member 9/1 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 T A B L E O F C O N T E N T S I. Introduction ......................................................... 1 II. Executive Summary .................................................. 2 III. Findings ........................................................... 7 (1)Assisting Pinochet.................................................. 7 (2)Turning a Blind Eye ................................................ 8 (3)Dysfunctional AML Program ......................................... 8 (4)Regulatory Failure at Riggs .......................................... 8 (5)Conflicts of Interest................................................. 8 (6)Uneven AML Enforcement........................................... 8 (7)Unseen Payments .................................................. 8 IV. Current Law ........................................................ 9 A. Key Anti-Money Laundering Laws..................................... 9 B. Anti-Money Laundering Regulation and Oversight . 10 V. Riggs Bank .......................................................... 12 A. Riggs National Corporation and Riggs Bank . 12 B. Augusto Pinochet .................................................. 18 Finding (1) .................................................... 18 C. Equatorial Guinea .................................................. 37 Finding (2) .................................................... 37 VI. Riggs’ AML Deficiencies and Regulators’ Inadequate Oversight ............. 68 A. Riggs’ Indifference to its Anti-Money Laundering Obligations . 68 Finding (3) .................................................... 68 B. Inadequate Regulatory Oversight of AML Deficiencies . 73 Finding (4) .................................................... 73 Finding (5) .................................................... 73 (1)Summary of Riggs Examinations ................................... 76 (2)Analysis of the Issues ............................................ 86 C. AML Oversight Generally ........................................... 94 Finding (6) .................................................... 94 VII. Foreign Corruption and Oil Transparency ............................... 98 Finding (7) .................................................... 98 A. Oil Companies in Equatorial Guinea ................................... 99 B. Oil Company Payments.............................................. 100 -i- (1) Payments for Leases and Land Purchases . 100 (2)Payments for Services............................................ 102 (3) Payments to Support E.G. Mission and Embassy . 103 (4)Payments for E.G. Students ....................................... 104 C. Joint Business Ventures ............................................. 107 D. Transparency Initiatives ............................................. 108 E. Foreign Corrupt Practices Act......................................... 112 VIII. Recommendations ................................................... 113 (1)Strengthen Enforcement ............................................. 113 (2)Take Regulatory Action ............................................. 113 (3)Issue Annual AML Assessments ...................................... 113 (4) Strengthen Post-Employment Restrictions . 113 (5)Authorize Intrabank Disclosures....................................... 113 (6)Increase Transparency............................................... 113 h h h -ii- MONEY LAUNDERING AND FOREIGN CORRUPTION: ENFORCEMENT AND EFFECTIVENESS OF THE PATRIOT ACT CASE STUDY INVOLVING RIGGS BANK July 14, 2004 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. 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. 1 See “Private Banking and Money Laundering: A Case Study of Opportunities and Vulnerabilities,” S. Hrg.106-428 (November 9 and 10, 1999), Minority staff report at 872 (hereinafter “1999 Subcommittee Private Banking Hearings”); “Role of U.S. Correspondent Banking in International Money Laundering,” S. Hrg.107-84 (March 1, 2, and 6, 2001), Minority staff report at 273. -2- 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 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. 2 Other accounts at Riggs present equally troubling facts, most notably the more
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