IT'S SAD WHEN a local institution disappears, and the case of Riggs Bank is especially so. In an era of interstate behemoths, the 168-year-old Riggs was the city's sole remaining locally owned major bank. It played a large and laudable role in the city's philanthropic life. We hope that Pittsburgh-based PNC Financial Services Group Inc., which is buying Riggs National Corp., will continue that tradition. But experience suggests that outside ownership often results in a diminished commitment to civic well-being.

It's also sad that Riggs was to a significant degree responsible for its own demise, as the bank's niche -- catering to embassies and other foreign clients -- became its downfall. In May the bank agreed to pay a $25 million penalty, the largest ever assessed, for violating the Bank Secrecy Act, which requires banks to guard against money laundering, determine that funds deposited in their accounts are from legitimate sources and report suspicious transactions. The misconduct involved Riggs accounts with Saudi Arabia and Equatorial Guinea, whose surging oil revenue had made it Riggs's biggest customer.

Last week, just before the PNC sale was announced, a report from the Senate Permanent Subcommittee on Investigations provided disturbing new details about the bank's dealings with Equatorial Guinea and former Chilean dictator Augusto Pinochet. Senate investigators found that top Riggs officers solicited Mr. Pinochet to open accounts with the bank, which then accepted millions of dollars in deposits without questioning the source of his wealth, helped him set up offshore corporations to hide his control of the funds and concealed the existence of the accounts from federal bank examiners.

The bank's senior leadership also courted the business of Equatorial Guinea's president, Teodoro Obiang Nguema, one of the world's more corrupt dictators. Riggs accepted nearly $13 million in cash deposits to the accounts of Mr. Obiang and his wife, never once filing a suspicious-activity report. A Riggs official hauled a suitcase stuffed with $3 million in $100 bills from the Equatorial Guinea Embassy; the money was deposited in offshore accounts controlled by Mr. Obiang.

Perhaps more disturbing than the bank's behavior, though, is the fact that federal bank regulators failed to police the abuses. The laxness is particularly troubling because cracking down on money laundering is an essential component of combating terrorists. Examiners at the Office of the Comptroller of the Currency repeatedly identified problems at Riggs, were mollified by promises to make fixes and took no action when the fixes weren't made. When the bank examiner responsible for Riggs retired from the government, he immediately took a job with the bank.

There are changes that could improve the situation: Nearly three years after passage of the USA Patriot Act, for example, final regulations implementing some of its key provisions to thwart money laundering have yet to be issued. But the biggest adjustment has to be one of attitude: Examiners need to update their traditional focus on safety and soundness to take heed of the threat that money laundering can pose -- not only to an institution's health, as the Riggs experience shows, but to the nation's security.