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Executive At Riggs Was Bank's Examiner

Vice President's Conduct As Regulator Under Examination

By Kathleen Day and Terence O'Hara
Washington Post Staff Writers
Friday, June 4, 2004; Page E01

The federal bank examiner responsible for overseeing Riggs Bank during the years it repeatedly violated anti-money-laundering rules joined Riggs as a vice president just weeks after he left the government in 2002, regulators acknowledged yesterday.

Comptroller of the Currency John D. Hawke Jr., whose agency is one of the two main regulators of U.S. banks, has known for at least several weeks that R. Ashley Lee, the "examiner in charge" of Riggs from 1998 to 2002, went to work for the bank after leaving the agency, said Robert M. Garsson Jr., a spokesman for Hawke.


Comptroller of the Currency John D. Hawke Jr. has asked his agency to look into Riggs's influence. (Joe Marquette -- AP)

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In response to questions yesterday, Hawke's office said he is investigating Lee's conduct to determine whether "inappropriate influence" by the bank delayed regulatory action against Riggs while Lee worked for the government. Neither Hawke nor his aides mentioned Lee or the internal investigation during two congressional hearings this week into Riggs, which last month was fined a record $25 million for failing to report suspicious transactions -- particularly those connected to embassy accounts for Saudi Arabia and Equatorial Guinea.

"We don't know whether Lee's employment at the bank had any bearing on the problems we've discovered," said Garsson. "In hindsight we believe that we should have brought this relationship to the attention to Congress, and we regret that we did not."

Lee could not be reached for comment yesterday. Riggs spokesman Mark N. Hendrix said, "We are not going to make him available."

The Office of the Comptroller of the Currency -- part of the Treasury Department -- first discovered shortcomings in Riggs's compliance with anti-money-laundering rules in 1997, but it wasn't until July 2003 that regulators cracked down on the bank, issuing a consent order that gave regulators say over its daily operations.

Some key lawmakers, including ranking members of the Senate Banking Committee, have faulted the OCC for allowing Riggs to remain out of compliance so long before taking action.

Hawke, speaking at a Senate Banking Committee hearing yesterday, said agency examiners failed to fully understand and deal with the money-laundering risks in Riggs's embassy banking unit. "It is clear to me that there was a failure of supervision," Hawke said, repeating what OCC Deputy Chief Counsel Daniel P. Stipano had told a House Financial Services subcommittee during hearings Wednesday. Neither Hawke nor Stipano told lawmakers about Lee.

"I think he should have told us that," Senate Banking Committee Chairman Richard C. Shelby (R-Ala.) said in an interview after the hearings. "These events are very suspicious and troubling, and we on the committee will demand more information."

Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) said he, too, was troubled to learn Riggs hired Lee. "This may explain why Riggs Bank got away with so many shenanigans for so long under the eye of the Office of the Comptroller of the Currency," he said. "When the watchdogs punch out, cash in and step through the revolving door, oversight suffers. Using almost all carrots and no sticks doesn't seem to be working to keep financial institutions in line, especially for the war on terrorism financing."

On May 20, a week after Riggs received its record fine, Hawke ordered a review of the history of OCC supervision of Riggs to evaluate the "quality and effectiveness" of its examinations going back at least to 1997, according to a memo Hawke sent to the director of the OCC's division of quality management.

"You should also seek to determine whether there were any inappropriate influences that may have affected our supervisory activities in this case," Hawke wrote in the memo. Hawke wants to know when Lee decided to go to work for Riggs and whether that decision influenced his supervision of the bank, said Garsson, the OCC spokesman.

Hawke said through a spokesman that he has asked his staff to propose a rule that would bar examiners from going to work for the banks they had directly overseen and that he has "felt for a long time" such a rule was needed.

In general, government ethics rules restrict former government employees from representing a company before the agencies for which they used to work but don't restrict regulators' ability to work for a company they previously regulated.

At Wednesday's hearing of the House Financial Service's subcommittee on oversight and investigations, the issue was raised, if indirectly, in an exchange between Chairwoman Sue W. Kelly (R-N.Y.) and Stipano.

Kelly: "What happened to the auditors that failed to find the problems at Riggs? Are they still at the OCC?"

Stipano: "It's hard to answer that, because we're . . . "

Kelly: "No, I thought it was a fairly straight question. Are they still at OCC?"

Stipano: "There are a lot of examiners who have examined Riggs over this time period. Some of them are still at OCC and some of them are not."

Yesterday Kelly said through a spokesman that she was "deeply troubled that the OCC avoided sharing this highly relevant information. The agency is not fully cooperating, and this is yet another sign that the OCC lacks the integrity and commitment we must have from a front-line defender against terror financing."

"I thought Chairwoman Kelly was asking me what disciplinary actions the OCC had taken against the examiners at Riggs, and that was the question I answered. I had no intention whatsoever to mislead the subcommittee, and I regret any misunderstanding," Stipano said in an e-mail yesterday.

According to Riggs's annual report to the Securities and Exchange Commission, Lee was hired as group vice president and loan review manager in the fall of 2002 after a 34-year career with the OCC. In October 2003, he was promoted to vice president and chief risk officer of Riggs, responsible for "enterprise-wide risk management."

According to Stipano's testimony Wednesday, the OCC did not begin to take a close look at Riggs's anti-money-laundering procedures until the fall of 2002, after press reports suggesting money in a Riggs account controlled by the wife of the Saudi Arabian ambassador to the United States may have ended up in the hands of several Sept, 11, 2001, hijackers. That examination led to the consent order between Riggs and the OCC in July 2003, ordering the bank to comply with the Bank Secrecy Act.

After further violations were found in Riggs's dealings with the embassy of Equatorial Guinea -- violations uncovered by a Riggs internal compliance team -- the OCC imposed another consent order and the $25 million fine. The OCC found that Riggs should have filed "suspicious activity reports" to regulators on more than two dozen large and unusual transactions conducted by the Saudi ambassador, Prince Bandar bin Sultan, and other officials at the Saudi and Equatorial Guinean embassies going back to 2001.

Hawke and Stipano have said Riggs had technical violations in its Bank Secrecy Act compliance procedures going back as far as 1997. Stipano said that examiners were assured by Riggs management and board that the problems were being fixed and that the issues never rose to the level of a formal enforcement action. Stipano and Hawke both said the agency's examiners did not recognize the potential for money laundering in Riggs's embassy banking division.

Banking experts say government bank examiners routinely take jobs at banks, though it's less common for chief examiners to join firms they have directly overseen. A spokesman for the Federal Reserve Board, the other main regulator of the banking industry, said, "Fed examiners are free to take a job with a bank they examine. However, the second they begin discussing employment with a bank, they must be disqualified from examining the bank, or working on any other matter affecting the bank."

A spokesman for another bank regulator, the Federal Deposit Insurance Corp., did not return calls seeking comment on that agency's policies.


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