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Riggs to Enter Guilty Plea

Bank to Pay $16 Million Fine Related to Suspicious Activity

By Terence O'Hara and Kathleen Day
Washington Post Staff Writers
Thursday, January 27, 2005; Page E01

Riggs Bank and its parent company have agreed to plead guilty to a federal criminal charge and pay a $16 million fine for failing to prevent potential money laundering at the District bank, according to sources close to the matter.

The guilty plea, expected to be filed in federal court here today, marks a turning point in Riggs's effort to get past a scandal that marred the reputation of a bank that held the personal accounts of more than 20 U.S. presidents in its 160-year history.

A Deal in Limbo Riggs's expected settlement with the Justice Department could give PNC Financial Services Group Inc. the right to renegotiate the price and terms of its original deal to buy the Washington banking institution.
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The agreement clears the way for Riggs's sale to PNC Financial Services Group Inc. in Pittsburgh, sources said, because Riggs negotiated a clause in the deal under which a five-year period of probation would expire in any change of control. PNC made a $766 million offer for the bank last year.

The investigation by the Department of Justice and the U.S. attorney here has focused for more than a year on Riggs's longtime specialty in diplomatic and international banking. In May, Riggs and its holding company agreed to pay a $25 million civil penalty as part of an agreement with federal bank regulators stemming from its handling of accounts held by diplomats and officials of the governments of Saudi Arabia and Equatorial Guinea.

Spokesmen for both the U.S. attorney and Riggs declined to comment.

Sources, who would speak only on the condition of anonymity because the agreement has not been filed in court, said Riggs and its holding company, Riggs National Corp., will plead guilty to one count of failing to file suspicious activity reports. Those are documents banks are required to submit to law enforcement authorities when officers are aware of questionable activity involving a client.

The failure to file such a report is the most basic violation of law in such cases and the easiest to prove, say lawyers and regulators familiar with such cases.

The agreement, reported in the Wall Street Journal yesterday, will include descriptions of several transactions involving Equatorial Guinea and officials of that West African country, including its president, a dictator accused by human rights advocates of pocketing much of that nation's $500 million a year in oil revenue, sources said. It will also detail transactions involving former Chilean dictator Augusto Pinochet, who conducted business at Riggs, often under assumed names, for nearly 20 years, the sources said.

In July, the Senate permanent subcommittee on investigations detailed Riggs's long-standing ties to Pinochet. In that inquiry, and subsequent investigations by Riggs's own staff, the bank was found to have conducted suspicious transactions involving Pinochet, members of his family and other Chilean military officers.

The plea arrangement applies only to the bank and its holding company. Criminal investigations of several former Riggs officers are ongoing, the sources said.

Bank regulators and the Department of Justice continue to probe possible misuse of company assets by Joe L. Allbritton and his family, including extensive use of Riggs's former corporate jet. Allbritton controls about 40 percent of Riggs and was its chief executive for 20 years, until 2001. He then installed his son, Robert, as chief executive of the bank's holding company. Robert and longtime Allbritton lieutenant Lawrence I. Hebert, chief executive of Riggs Bank, continue in those positions.

While the plea agreement means PNC will not be assuming any criminal liability when it buys Riggs, the fine and the heavy legal costs associated with the various probes could provide an opportunity for PNC to renege on its agreement to buy Riggs. The merger agreement allows the Pittsburgh company to walk away should any material adverse change occur in Riggs's financial or legal status. Yet PNC may be reluctant to invoke the clause, according to analysts.

"From PNC's standpoint, this settlement is going to be seen as better than expected," said Gary Townsend, who follows Riggs for Friedman, Billings, Ramsey Group Inc. "The $16 million fine amounts to only about 50 cents a share. That, and the high legal costs, could become the basis for a renegotiation."

But there may not be much to renegotiate, Townsend said. PNC agreed in July to pay about $24 a share in stock and cash to buy Riggs. As the criminal investigation got underway, Riggs stock fell significantly below that. But by yesterday's close, Riggs stock had recovered nearly all of the ground it lost since the deal was announced. It closed at $22.12, up 97 cents. The day before the PNC deal was announced, Riggs shares closed at $22.72.

One of the factors that cushioned the stock price, Townsend said, was the expectation that if PNC abandoned the deal, another institution would probably step in. Four banks bid for Riggs, according to Securities and Exchange Commission filings, and at least one of them remains intensely interested in a deal should PNC decide against it, said sources familiar with other potential bidders.

A PNC spokesman declined to comment.

If the sale goes through under the current terms, the Allbritton family stands to walk away with close to $300 million.

The guilty plea is a rare one for a commercial bank. In recent cases of criminal settlements with the Department of Justice, banks have agreed to what is known as a deferred prosecution. That means the bank pays a fine but does not technically plead guilty -- agreeing instead to certain facts that could result in a prosecution in a period of one or more years if the bank fails to make good on its commitments to clean up its act.

The relatively small size of the Riggs fine also surprised some observers. AmSouth Bancorp. of Alabama paid a $40 million penalty as part of its deferred prosecution agreement on similar charges last fall.

"I had expected it to be larger," said analyst Townsend of the Riggs fine. "I had heard numbers bandied about as high as $100 million."

A source familiar with the deal said the negotiations with the Justice Department were affected by a number of factors. First, there was a "deep interest" in getting an agreement done soon so Riggs could be sold. The Office of the Comptroller of the Currency has declared Riggs a problem institution, and a sale would remove that issue, this source said.

Also, Justice lawyers took into account that most of the alleged criminal activity at the bank was discovered and disclosed by the bank's own internal investigative team.

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