Riggs Bank is trying to reach a settlement with the Justice Department by the end of the month that would end the federal government's criminal probe of the company and remove the biggest roadblock to its pending merger with PNC Financial Services Group Inc., sources familiar with the negotiations said yesterday.
The negotiations aim to settle any criminal claims against District-based Riggs Bank, its parent company, Riggs National Corp., and other company affiliates in connection with the company's scandal-plagued embassy banking operations, including widespread alleged violations of laws intended to thwart money-laundering.
The settlement talks have reached a critical stage because of Riggs's pending merger with PNC, sources said. To complete the $766 million deal by an April 30 deadline the two companies set months ago, PNC must be satisfied that it would not be inheriting any unknown criminal liability, said the sources, who spoke on the condition of anonymity because of the sensitivity of the negotiations.
Any settlement would be with only the Riggs corporate entities. Individuals alleged to be involved in wrongdoing would remain open to prosecution, the sources said. The settlement being discussed would be a deferred prosecution, in which a company avoids prosecution by acknowledging its failings, agrees to correct them and cooperates fully with the government on any further criminal prosecutions of individuals. Sources said any settlement would probably involve a substantial fine, but amounts under discussion could not be determined yesterday.
Riggs officials think that without a settlement by the end of this month, PNC will probably pull out of the deal, sources said. Any fine imposed on Riggs would probably lead to a corresponding reduction in the price PNC has agreed to pay for the company. When the deal was announced in July, PNC offered the equivalent of about $24 a share. But Riggs stock has traded well below that figure for more than two months, indicating investors think PNC would negotiate a lower price because of high legal costs incurred by Riggs this fall and the potential for a criminal fine. Shares closed yesterday at $21.59, up 25 cents.
Riggs spokesman Mark N. Hendrix and PNC spokesman Brian Goerke each declined to comment yesterday. A spokesman for the U.S. attorney's office in the District, which heads the Justice Department's ongoing probe of the bank and its top executives and directors, also would not comment.
Riggs has been under investigation by the U.S. attorney's office, with the help of the FBI, the Secret Service, and the Bureau of Immigration and Customs Enforcement, for much of the past year. The investigations have focused on the bank's failure to properly monitor and report suspicious transactions involving former Chilean dictator Augusto Pinochet, the government of Equatorial Guinea and officials at the Saudi Arabian Embassy, according to people familiar with the investigations.
The bank was fined $25 million in May by the Office of the Comptroller of the Currency for failing to report suspicious dealings with Equatorial Guinea and the Saudi Embassy, and a Senate subcommittee in July detailed Riggs's dealings with Pinochet. That subcommittee investigation, and subsequent discoveries by Riggs's own internal investigators, chronicled suspicious accounts and transactions involving Pinochet, his family and members of the Chilean military going back at least 20 years that were never reported by Riggs to law enforcement agencies. The investigations also uncovered attempts by Riggs officials to disguise the identity of Pinochet's accounts, including efforts to keep the accounts hidden from bank examiners.