January 17, 2005
Riggs National Bank Directors Asleep at the Switch
Riggs National Bank became embroiled in a money laundering scandal related to its relationships with foreign governments and leaders, including former Chilean dictator Gen. Augusto Pinochet, and as a result the bank was bought out by PNC Financial (see earlier posts here and here). A story in the Washington Post (Jan. 17) details the failure of the Riggs board of directors to pursue any additional information, much less remedial measures, when informed of the problem. According to the article:
In October 2002, the directors of Riggs Bank received an internal memorandum listing $1.9 million in suspicious cash withdrawals by former Chilean dictator Augusto Pinochet from 2000 to 2002 -- the board's first official notification of a relationship that bank regulators were investigating. The directors did not question the nature of the bank's relationship with Pinochet, who only a year before had eluded a Spanish criminal indictment on genocide and torture charges, according to sources who have seen minutes and transcripts of the meeting. No internal procedures were changed. The board took no action.
Even worse, the banks controlling shareholder, Joe Allbritton and his wife Barbara--both board members--took the lead in ignoring the problem, according to the article. "At Riggs, the directors at the bank and its holding company did not confront the huge risks connected with Riggs international banking relationships. The boards followed the lead of Allbritton and his wife, Barbara -- both directors who were often openly derisive of efforts by regulators to improve oversight of its international banking operations." In an industry as heavily regulated--and prone to abuse--as banking, it is surprising to hear that directors would tolerate such an attitude. Maybe I'm just naive. (ph)
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