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Inquiry Into Use of Riggs Plane Expands

By Terence O'Hara
Washington Post Staff Writer
Wednesday, January 19, 2005; Page A01

Of all the perks made available to Joe L. Allbritton during his tenure at the top of Riggs Bank, none was more expensive than the "flying branch."

The Gulfstream jet was an unusual extravagance for a bank of Riggs's small size, yet Allbritton fiercely defended its use. In 1992, he defeated a shareholder proposal calling on Riggs to sell it. The following year, when an internal efficiency study recommended laying off 550 people and selling the Gulfstream, Riggs got rid of the employees but kept the jet.

The Justice Department is investigating Joe L. Allbritton's extensive personal use of a Riggs Bank company jet. (Michael Williamson -- The Washington Post)

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Now, in addition to an investigation of money laundering at Riggs, the Justice Department is investigating Allbritton's extensive personal use of the Gulfstream and other company assets during and after his time as chief executive of the company.

Banking regulators were already looking into similar matters, but the Justice Department has expanded the inquiry into whether the jet -- first purchased in 1983 and then replaced in 1998 with a top-of-the-line Gulfstream V -- was maintained for business purposes or primarily for Allbritton's private transport, said several sources familiar with the details of the investigations who spoke only on the condition of anonymity.

Total business and personal use of the G-Five, as the jet is known, cost Riggs shareholders at least $55 million from 1999 until it was sold in fall 2004, the sources said. At least half of the plane's total time in the air was on personal trips for Allbritton, according to these same sources. Company policy did not require Allbritton to reimburse Riggs for his personal use of the aircraft, although it did require him to pay taxes on the amount the company said the benefit was worth.

Complicating matters for Riggs, and potentially opening up a new avenue of legal liability for a company already facing possible criminal charges for its failure to abide by regulations designed to prevent money laundering, is that Riggs did not disclose the Allbrittons' use of the aircraft to shareholders until last year and did so only for 2003 and 2002. Securities and Exchange Commission rules require disclosure of fringe benefits worth more than $50,000 a year. However, there is no standard for calculating the value of such benefits.

In addition to personal use of the jet, according to the sources, the Justice Department has asked for documents related to Allbritton and his wife's regular use of a company-owned apartment at the Savoy Hotel during their frequent visits to London, as well as Allbritton's personal use of a company-employed fitness instructor and massage therapist until 2002, when the company's fitness center closed. Robert L. Allbritton, Joe's son and the current chief executive, also used Riggs's jet to fly his wedding party to the Caribbean for a prenuptial trip in 2003 and used the jet for his honeymoon.

Top executive perquisites such as the use of a company jet or apartments and other amenities are common for large, multinational companies but rare for a company as small as Riggs and are rarely so expansive, executive compensation experts said.

According to sources familiar with recent discoveries from an internal investigation, audits of the use of the aircraft and apartment were cursory, incomplete or non-existent, depending on the year, and were never provided to the bank's board of directors, in apparent violation of the bank's own policy. So, dollar values reported to shareholders for Allbritton's use of the plane may be unreliable, sources said.

Company spokesman Mark N. Hendrix said, "Riggs bank declines to comment on these matters."

Paul Clark, a spokesman for the Allbritton family, said Joe and Robert declined to comment directly to a reporter. But he said on their behalf, "The Allbritton family accounted for all personal use of the airplane and paid all appropriate taxes."

The inquiries by the Justice Department, the Office of the Comptroller of the Currency, the Federal Reserve and the company are zeroing in on the fact that Riggs directors or executives other than the Allbrittons used the jet or the Savoy residence extremely rarely, the sources said. The regulatory investigations began as part of a broad inquiry into whether company-owned assets had been misused, as well as whether the company had adequate internal controls designed to make sure they were not, the sources said.

Though the Allbritton family collectively owns nearly 40 percent of Riggs stock and has tightly controlled the management and boards of the company for 20 years, more than 60 percent of the stock is publicly owned, much of it by small investors, including many current and former employees.

Allbritton retired in 2001 and, after handing over the chief executive job to his then-32-year-old son, Robert, became senior chairman and then vice chairman of Riggs National Corp., the bank's holding company. He retained a seat on Riggs National's board through May, when both he and his wife resigned their directorships. As part of the 2001 agreement in which Riggs bought out the remaining years on his contract, Allbritton agreed to continue to give personal attention to the international and "heads-of-state" business of Riggs Bank.

Riggs's Gulfstream V was considered the top-of-the-line corporate jet when it was rolled out in 1997. While it is not the most lavishly appointed business jet, it is prized primarily for its speed, ability to travel great distances, and a cabin pressurization system allowing it to fly above 50,000 feet.

There are only 188 G-Fives in operation in the world, according to Gulfstream Aerospace Corp. spokesman Robert N. Baugniet. About 85 percent of the owners are multinational corporations, he said.

"It's an incredible machine," Baugniet said.

The most oft-cited reasons for owning one, from a company's point of view, are security for executives and the vast savings in time and hassle compared with commercial travel, he said.

In 2003, Riggs Bank chief executive Lawrence I. Hebert defended the plane to employees questioning why the bank needed a jet, given that Riggs's branch system didn't go beyond Fairfax.

"The plane is a flying branch," Hebert said, according to sources who attended the meeting. "It has proved its value many times over."

Riggs purchased the Gulfstream V in 1998 for $39.2 million, including $1 million in extra costs to custom-design the interior in royal blue and gold, the corporate colors, sources said. The jet replaced a 14-year-old Gulfstream III that was sold to Perpetual Corp., a privately owned holding company controlled by Allbritton.

The Gulfstream V was stationed at Dulles International Airport, along with two separate aircraft owned by other Allbritton-affiliated entities. It required two full-time pilots and a full-time flight attendant, according to sources, and cost $3 million a year to operate.

The vast majority of its flight hours were logged to European capitals such as London, Berlin and Paris, in addition to many flights to La Jolla, Calif., where Allbritton has a residence. The plane was also used to travel to South America, especially to Chile, where Riggs maintained large deposit and loan relationships with that country's military. Company records show it was also used twice to transport Allbritton to Santiago, Chile. According to sources, Allbritton made two business trips to Santiago that included visits to former dictator Augusto Pinochet, who few people knew was a Riggs customer until last year, when the Senate permanent subcommittee on investigations detailed six years, until 2002, of questionable transactions involving his accounts at Riggs. The Pinochet accounts are the subject of a criminal investigation, according to sources.

Riggs did not disclose the cost of Allbritton's personal use of the Gulfstream until April, though he had made personal use of company aircraft from the time Riggs bought its first plane in 1983, sources said.

Long-standing SEC rules require that non-cash benefits to a chief executive or director be disclosed to shareholders in a company's annual proxy statement. Typically, these kinds of benefits are the dollar value of club memberships maintained by the company, the premiums paid on company-maintained life insurance policies, or financial and tax-planning services. In most cases, the cost of personal use of a jet falls under this rubric. As long as the total amount of such benefits is worth more than $50,000, it must be reported and described to shareholders, said Laura G. Thatcher, head of Alston & Bird LLP's executive compensation practice in Atlanta.

Riggs did not do this until April, when it filed its proxy statement for 2003. In it, Riggs disclosed the cash value of Allbritton's personal use of the G-Five in 2003 as $334,552, a number arrived at using an Internal Revenue Service formula to calculate the incremental cost of the plane's personal use by Allbritton. In the same proxy, Allbritton's use of the plane was valued at $251,187 in 2002. The proxy did not provide such figures for earlier years, nor did any previous proxy contain such data.

In the same April filing, Riggs said Robert Allbritton's personal use of the plane was calculated to be worth $62,973 in 2003 and $71,424 in 2002.

Thatcher said interpretation of the disclosure rules for such benefits has been changing in recent years, with the SEC taking a tougher stance with respect to how companies should calculate and report executives' personal use of company aircraft and other company assets.

"It should have been reported to shareholders" if its value exceeded $50,000, said Gerard Cassidy, an analyst with RBC Capital Markets who has followed bank stocks for 20 years. "To use the plane and not report it is inappropriate."

The proxy refers to an "aircraft policy" adopted by the company that says that reimbursement is not required if a director or employee uses the plane for personal reasons but that the cost of its use would be reported as income to the IRS and taxed accordingly.

The same aircraft policy, according to several people familiar with it, calls upon the bank board's audit committee to receive annual internal audits of the plane's use, including for what purpose the plane is used. But audits were not done in accordance with the policy and were never given to the board, sources familiar with the matter said. Audit committee members never asked for them, according to the same sources.

Members of the audit committees of both the bank and its holding company did not return repeated phone calls made during recent months, or they declined to comment when reached by phone. They did not respond to a request, through a Riggs spokesman last week, to comment for this story.

The Riggs spokesman declined to identify members of the bank board's audit committee during the years in question. According to SEC filings, the holding company's audit committee during these years was Robert L. Sloan, chief executive of Sibley Memorial Hospital, which has one of Riggs's largest outstanding loans; real estate developer Charles A. Camalier III; and Fulbright & Jaworski LLP managing partner Steven B. Pfeiffer.

A review by The Washington Post of the policies of a dozen major companies found that at those companies, personal use of a company jet is written into executive employment agreements. These companies typically do not allow personal use of the aircraft by any director or employee unless it is specified in an employment contract. While the dollar value of that benefit to companies varied widely, in only one instance was it more than $200,000 a year.

For example, Gannett Co.'s chief executive, Douglas H. McCorkindale, is allowed to use Gannett's aircraft for personal use under his contract, but up to only $150,000 out of an in-kind account set aside for fringe benefits. In 2003, he didn't use the plane for personal matters, according to Gannett's proxy statement.

Time Warner Inc. chief executive Richard D. Parsons availed himself of personal use of the jet to the tune of $163,503 in 2003. Insurance holding company giant American International Group Inc. owns corporate jets and a yacht, but all of its top executives made no more than "incidental" personal use of them, according to its proxy.

The Riggs plane was not the only plane to which Allbritton had access. His privately owned Perpetual still owns the older, slower G-Three, and Allbritton Communications, which he also controls, owns a Beechcraft King Air 300 turboprop, according to Federal Aviation Administration records.

But Riggs helped pay for those, too. According to SEC documents, Riggs paid Perpetual and Allbritton Communications a combined $234,139 for company use of those aircraft in 2000 and 2001.

Riggs sold the Gulfstream V for $28.5 million in late 2004. It booked a $7.1 million loss on the sale, according to SEC documents.

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