Washington DC: End of an era
The recent takeover of Washington DC's oldest financial institution, Riggs Bank, followed one of the highest profile in a string of financial scandals that have arisen as US regulators crack down on financial wrongdoing in the wake of 11 September. Daniel Keating and Gordon L Miller look at the lessons to be learned
August 25, 2004 at 08:03 PM
7 minute read
In May, Riggs Bank of Washington DC, the US capital's oldest locally-based financial institution, agreed to pay a $25m (£13.7m) civil money penalty for violating the Bank Secrecy Act. This is the largest fine assessed to date for violating that Act, which requires banks to adopt a comprehensive anti-money laundering (AML) compliance programme. The alleged violations identified at 168-year-old Riggs Bank included numerous transactions involving accounts related to the Embassy of Saudi Arabia and the Government of Equatorial Guinea. Riggs had previously been cited in 2002 for violations involving transactions for former Chilean dictator Augusto Pinochet.
The civil money penalty was the result of what regulators termed a wilful and systemic failure to report suspicious transactions. The examiners, who began to question transactions as early as 1997, also found that the bank lacked adequate policies, systems and controls to identify suspicious transactions. As a result of these findings and the increasingly negative publicity that followed, Riggs decided to terminate its embassy banking business. The bank also hired an investment bank to assist in exploring its "strategic alternatives", including a sale of the company. Not long after, PNC Financial Services Group of Pittsburg announced that it was acquiring the embattled bank.
Since the events of 11 September, 2001, banking activity has come under increased scrutiny by the US Government. However, for the most part, the compliance requirements facing US banks are not new. The Bank Secrecy Act was adopted in 1970, and most banks have had AML procedures in place for many years. The Act requires banks and certain other financial institutions to adopt an adequate and comprehensive AML programme, which must include establishing internal controls to maintain compliance, implementing an audit/compliance programme, developing an employee training programme and designating a company compliance officer.
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