S. Hrg. 108–633

MONEY LAUNDERING AND FOREIGN CORRUPTION:

ENFORCEMENT AND EFFECTIVENESS

OF THE PATRIOT ACT

HEARING

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

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GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JULY 15, 2004

Printed for the use of the Committee on Governmental Affairs

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MONEY LAUNDERING AND FOREIGN CORRUPTION:

ENFORCEMENT AND EFFECTIVENESS OF THE PATRIOT ACT

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95–501 PDF 2004

S. Hrg. 108–633

MONEY LAUNDERING AND FOREIGN CORRUPTION:

ENFORCEMENT AND EFFECTIVENESS

OF THE PATRIOT ACT

HEARING

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

OF THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JULY 15, 2004

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

AMY B. NEWHOUSE, Chief Clerk

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

NORM COLEMAN, Minnesota, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

RAYMOND V. SHEPHERD, III, Staff Director and Chief Counsel 

LELAND B. ERICKSON, Counsel 

ELISE J. BEAN, Minority Staff Director and Chief Counsel 

ROBERT L. ROACH, Minority Counsel and Chief Investigator 

MARY D. ROBERTSON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Coleman .............................................................................................. 1

Senator Levin .................................................................................................... 4

Senator Lautenberg .......................................................................................... 17

Senator Fitzgerald ............................................................................................ 33

Prepared statements: 

Senator Shelby .................................................................................................. 75

WITNESSES 

THURSDAY, JULY 15, 2004

Lawrence I. Hebert, President and Chief Executive Officer, Riggs Bank N.A. .. 10

Raymond M. Lund, Former Executive Vice President, International Banking 

Group, Riggs Bank N.A. ...................................................................................... 10

R. Ashley Lee, Executive Vice President and Chief Risk Officer, Riggs Bank 

N.A. ....................................................................................................................... 10

Daniel P. Stipano, Deputy Chief Counsel, Office of the Comptroller of the 

Currency, U.S. Department of the Treasury ..................................................... 43

Jennifer C. Kelly, Deputy Comptroller, Mid-Size and Credit Card Bank Supervision, OCC ..................................................................................................... 43

John Noonan, Former Assistant Deputy Comptroller, OCC ................................ 43

Lester Miller, Examiner-In-Charge (Riggs Bank), OCC ....................................... 43

Andrew P. Swiger, Executive Vice President, ExxonMobil Production Company, Houston, Texas .......................................................................................... 63

Albert J. Marchetti, Vice President, International and Federal Relations, 

Amerada Hess Corporation, New York, New York ........................................... 64

Steven P. Guidry, Central Africa Business Unit Leader, Marathon Oil Company, Houston, Texas .......................................................................................... 66

ALPHABETICAL LIST OF WITNESSES

Guidry, Steven P.: 

Testimony .......................................................................................................... 66

Prepared statement .......................................................................................... 122

Hebert, Lawrence I.: 

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 76

Kelly, Jennifer C.: 

Testimony .......................................................................................................... 43

Prepared statement .......................................................................................... 86

Lee, R. Ashley: 

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 76

Lund, Raymond M.: 

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 76

Marchetti, Albert J.: 

Testimony .......................................................................................................... 64

Prepared statement .......................................................................................... 118

Miller, Lester: 

Testimony .......................................................................................................... 43

Prepared statement .......................................................................................... 86

Noonan, John: 

Testimony .......................................................................................................... 43

Prepared statement .......................................................................................... 86

Page

IV

Stipano, Daniel P.: 

Testimony .......................................................................................................... 43

Prepared statement .......................................................................................... 86

Swiger, Andrew P.: 

Testimony .......................................................................................................... 63

Prepared statement .......................................................................................... 115

APPENDIX 

Staff Report entitled ‘‘Money Laundering and Foreign Corruption: Enforcement and Effectiveness of the Patriot Act—Case Study Involving Riggs 

Bank’’ ..................................................................................................................... 126

EXHIBITS 

1. a. Riggs Bank N.A., Timeline on OCC Supervision of BSA/AML, prepared by OCC ............................................................................................... 211

b. Cash Deposits into Otong Account Controlled by EG President, chart 

prepared by the Permanent Subcommittee on Investigations ................. 213

c. Transfers to and from Equatorial Guinea’s Oil Account at Riggs Bank 

Involving Kalunga Company S.A., chart prepared by the Permanent 

Subcommittee on Investigations ................................................................. 214

d. Transfers from Equatorial Guinea’s Oil Account at Riggs Bank To 

Apexside Trading, Ltd., chart prepared by the Permanent Subcommittee on Investigations ....................................................................... 215

e. Quotes from U.S. State Department Report on Equatorial Guinea, 

charts prepared by the Permanent Subcommittee on Investigations ..... 216

f. Pinochet Legal & Financial Timeline: 10/98–5/02, chart prepared by 

the Permanent Subcommittee on Investigations ....................................... 220

g. Sample of Oil Company Payments in Equatorial Guinea, chart prepared by the Permanent Subcommittee on Investigations ...................... 221

h. Riggs will not accept as a customer any individuals, company or trust 

relationship whom we have any reason whatsoever to believe . . . 

has obtained funds through illegal or illicit means. Quote from Riggs 

Know Your Customer Compliance Policies and Procedures Manual—

January 2001 ............................................................................................... 222

2. Riggs & Co. Know Your Customer Client Profile for three accounts: 

—Ashburton Company Ltd .............................................................................. 223

—Althorp Investment Co., Ltd ........................................................................ 234

—Pinochet Personal Account [(Augusto Pinochet Ugarte) (Lucia Hiriart)] . 242

3. Riggs Negotiable Instrument Issuance Log (Cashiers’ Checks/International Private Banking) Listing cashiers’ checks in the name of A.P.

(Pinochet); IPBD Clearing (International Private Banking Division); L. 

Hiriart (Pinochet’s spouse) ............................................................................... 245

4. Four Riggs Monthly Bank Statements: Augusto Pinochet Ugarte and 

Lucia Hiriart De Pinochet dated 11–22–00 through 1–23–01 and L 

Hiriant and A Ugarte dated 1–24–01 through 3–21–01 ................................ 250

5. Riggs Memorandum, dated July 2000, re: BSA Request Items—List of 

Customer Accounts ............................................................................................ 254

6. Riggs Memorandum, dated June 2002, re: OCC BSA MLP F/U Request

(Account history regarding Pinochet) .............................................................. 257

7. a. OCC email, dated July 2002, re: Riggs conclusion memo and [redacted] .......................................................................................................... 259

b. OCC email, dated July 2002, re: EV .......................................................... 260

c. OCC Examination Conclusions (Pinochet reference) ................................ 261

d. OCC email, dated July 2004, re: Pinochet comment on EV .................... 262

8. Riggs Risk Management Interoffice Memoranda, dated September and 

October, 2002 .................................................................................................... 263

9. Riggs Bank transfer of funds from Equatorial Guinea oil account to 

accounts of Melchor Edjo ................................................................................. 266

10. Letters of Credit File for Government of Equatorial Guinea regarding 

Sabiex International S.A. ................................................................................. 270

Page

V

11. Riggs email, dated May 2001, re: Equatorial Guinea (As many of you 

know, Equatorial Guinea has gone from being a very small, insignificant 

relationship to the largest single deposit relationship at Riggs ($180MM).) 296

12. Riggs Correspondence to His Excellency Obiang Nguema Mbasogo, President of the Republic of Equatorial Guinea, dated May 2001, re: thanking 

President for opportunity to assist him and the Government of Equatorial 

Guinea ............................................................................................................... 297

13. Minutes of a Joint Meeting of the International Committees of Riggs 

National Corporation and Riggs Bank N.A., July 11, 2001 (Kareri presentation on Equatorial Guinea) ........................................................................... 298

14. Riggs account opening documentation for Nusiteles GE Ltd. ....................... 302

15. Riggs signature card for Republica De Guinea Ecuatorial, listing Simon 

P. Kareri, Education Board Member Treasurer as authorized signer .......... 305

16. a. Riggs KYC Profile for Otong S.A., dated 9/20/99 ...................................... 307

b. Signature Card of Otong S.A., dated 9/20/99 ............................................ 313

c. Riggs KYC Profile for Otong S.A., dated 5/30/00 ...................................... 314

d. Riggs KYC Profile for Otong S.A., dated 11/19/02 .................................... 324

17. Riggs Memorandum, dated December 2002, re: Equatorial Guinea’ article 

(L.A. Times article regarding Equatorial Guinea) ......................................... 329

18. Riggs Electronic Payment Advice, dated January 2003, re: $25,000 transfer to Equatorial Guinea Ambassador ............................................................ 330

19. Riggs Memorandum, dated January 2003, re: Equatorial Guinea (summarizing account particulars) ............................................................................... 333

20. Riggs email, dated December 2003, re: EG Student List (List of students 

receiving funding from oil companies) ............................................................ 335

21. Riggs email, dated December 2003, re: Equatorial Guinea + FW: What 

Don’t We Know? ................................................................................................ 336

22. Riggs correspondence, dated January and February 2004, re: Information 

Sharing Request Pursuant to 314(B) of the United States Patriot Act 

and 31 CFR 103.110 ......................................................................................... 339

23. Complaint, February 2004, re: Action for Breach of Contract, Foley Hoag 

LLP v. Republic of Equatorial Guinea, et al .................................................. 346

24. Materials relating to Jadini Holdings Limited ............................................... 357

25. Riggs Memorandum, Undated (but likely June 26, 2002), re: Equatorial 

Guinea Update (Riggs Bank continues to enjoy an excellent relationship 

with the Government of Equatorial Guinea.) .................................................. 365

26. Riggs Fax and Memoranda, dated January 2004, re: Otong’s CTR’s ........... 367

27. OCC Ethics Bulletin Board, dated January 2001, Guidelines For OCC 

Employees On Contacts With Former OCC Employees .................................. 370

28. OCC Ethics Bulletin Board, dated May 2002, Ethics Rules For Resigning 

Or Retiring OCC Employees ............................................................................ 373

29. OCC email, dated September 2002, re: pre-exit ethics—remaining tasks/

questions ............................................................................................................ 378

30. OCC email, dated September 2002, re: pre-exit ethics—remaining tasks/

questions ............................................................................................................ 385

31. OCC Memorandum, dated September 2002, re: Post-Employment Rules .... 392

32. OCC email, dated December 2003, re: Riggs 4Q03 Supervisory Target 

Letter for Personal Trust .................................................................................. 394

33. Minutes of a Joint Meeting of the Audit Committees of Riggs National 

Corporation and Riggs Bank N.A., February 25, 2004 .................................. 397

34. OCC email, dated March 2004, re: Meeting with Riggs Management—

Scope of Embassy Banking Review .................................................................. 403

35. OCC email, dated March 2004, re: Riggs EBD Weekly Update Meeting ...... 405

36. Minutes of the Special Meeting of the BSA Compliance Committees of 

Riggs National Corporation and Riggs Bank N.A., April 7, 2004 ................ 407

37. Riggs Know Your Customer Compliance Policies and Procedures Manual, 

2001 .................................................................................................................... 422

38. Riggs Bank N.A., Timeline on OCC Supervision of BSA/AML, prepared 

by OCC .............................................................................................................. 452

Page

VI

39. Minutes of the Joint Regular Meeting Of the Boards of Directors Of 

Riggs National Corporation and Riggs Bank N.A., July 16, 2003 ............... 454

40. Riggs Memorandum, dated April 2004, re: Embassy Banking Division 

(I found very little effective remediation of controls and training within 

the Embassy Banking Division.) ...................................................................... 464

41. Andersen Memorandum, dated December 2001, re: Embassy Banking

(audit review memorandum) ............................................................................ 466

42. OCC Policies & Procedures Manual, dated October 23, 2002 ....................... 470

43. OCC email, dated January 2004, re: Riggs BSA History of Reports and 

WP ...................................................................................................................... 479

44. OCC correspondence, dated July 2003, re: Riggs Bank National Association, McLean, Virginia ...................................................................................... 481

45. Handwritten notes of Les Miller, OCC ........................................................... 482

46. OCC email, dated May 2003, re: SRC Memo ................................................. 484

47. OCC email, dated September 2002, re: Riggs EV .......................................... 486

48. a. Affidavit of Joseph O. Boss, dated July 14, 2004 (redacted by the 

Permanent Subcommittee on Investigations) ............................................ 487

b. Affidavit of Lois A. Trojan, dated July 14, 2004 ....................................... 490

c. SEALED EXHIBIT: Affidavit of Joseph O. Boss, dated July 14, 2004 

(unredacted) .................................................................................................. *

49. Who Would You Say Is The World’s Worst Dictator? The Washington 

Post Parade, February 22, 2004 ...................................................................... 493

50. Regulatory Actions:

a. Stipulation and Consent to the Issuance of a Consent Order and Consent Order between the Department of the Treasury, Office of the 

Comptroller of the Currency (OCC) and Riggs Bank, N.A., July 2003 ... 498

b. Stipulation and Consent to the Issuance of a Consent Order and Consent Order between the OCC and Riggs Bank N.A., May 2004 ............... 520

c. Consent Order of Civil Money Penalty between OCC and Riggs Bank 

N.A., May 2004 ............................................................................................ 536

d. Assessment of Civil Money Penalty between Department of the Treasury, Financial Crimes Enforcement Network (FinCEN) and Riggs 

Bank, N.A., May 2004 ................................................................................. 547

e. Cease and Desist Order between Board of Governors of the Federal 

Reserve System and Riggs National Corporation, and Riggs International Banking Corporation, May 2004 ................................................. 557

51. a.–k. Additional documents related to Equatorial Guinea ........................... 570

52. a.–zz. Additional documents related to Pinochet accounts ........................... 699

53. Responses to Supplemental Questions for the Record submitted to 

Amerada-Hess Oil Company ............................................................................ 830

54. Responses to Supplemental Questions for the Record submitted to 

ExxonMobil Oil Company ................................................................................ 834

55. a. Responses to Supplemental Questions for the Record submitted to 

Marathon Oil Company ............................................................................... 870

b. Correspondence sent on behalf of Marathon Oil Company, dated September 21, 2004, to the Permanent Subcommittee on Investigations, 

regarding ownership of GEOGAM .............................................................. 884

56. Responses to Supplemental Questions for the record submitted to the 

Office of the Comptroller of the Currency (OCC) ........................................... 898

57. Correspondence from the Comptroller of the Currency to the Permanent 

Subcommittee on Investigations, August 26, 2004, regarding Post Employment Issues ........................................................................................................ 903

Page

VII

58. Documents relating to Footnotes found in Money Laundering and Foreign 

Corruption: Enforcement and Effectiveness of the Patriot Act, a Report 

prepared by the Minority Staff of the Permanent Subcommittee on Investigations in conjunction with the Subcommittee hearings held July 15, 

2004: 

[Note: Footnotes not listed are explanative, reference Subcommittee interviews for which records are not available to the public, or reference 

a widely available public document.]

Footnote No. 20, SEALED EXHIBIT ..................................................................... *

Footnote No. 22, SEALED EXHIBIT ..................................................................... *

Footnote No. 31, See Attachment ............................................................................ 907

Footnote No. 32, See Attachment ............................................................................ 923

Footnote No. 34, See Footnote No. 31 (above) ........................................................ 907

Footnote No. 36, See Footnote No. 31 (above) ........................................................ 907

Footnote No. 37, See Attachment and Footnote No. 31 (above) ........................ 940, 907

Footnote No. 38, See Attachments (2) and Hearing Exhibit No. 2 

(above) ............................................................................................... 942, 947, 223–242

Footnote No. 40, SEALED EXHIBITS (2) ............................................................. *

Footnote No. 41, See Footnote No. 40—SEALED EXHIBIT (above) .................... *

Footnote No. 43, SEALED EXHIBITS (2) ............................................................. *

Footnote No. 44, See Attachment ............................................................................ 948

Footnote No. 45, See Footnote No. 44 (above) ........................................................ 948

Footnote No. 46, See Attachments (2)................................................................. 965, 969

Footnote No. 47, SEALED EXHIBIT ..................................................................... *

Footnote No. 48, See Footnote No. 38 (above).................................... 942, 947, 223–242

Footnote No. 49, SEALED EXHIBIT ..................................................................... *

Footnote No. 51, SEALED EXHIBIT ..................................................................... *

Footnote No. 52, SEALED EXHIBITS (3) ............................................................. *

Footnote No. 53, See Footnote No. 52—SEALED EXHIBIT (above) .................... *

Footnote No. 54, See Attachment, SEALED EXHIBIT, and Footnote No. 52—

SEALED EXHIBIT (above) ................................................................................. *

Footnote No. 55, See Attachment and Footnote No. 54—SEALED EXHIBIT 

(above) ................................................................................................................... 986

Footnote No. 56, See Footnote No. 38 (above).................................... 942, 947, 223–242

Footnote No. 57, SEALED EXHIBIT ..................................................................... *

Footnote No. 58, See Attachment ............................................................................ 989

Footnote No. 59, See Footnote No. 52—SEALED EXHIBIT (above) .................... *

Footnote No. 60, SEALED EXHIBIT ..................................................................... *

Footnote No. 61, See Footnote No. 40—SEALED EXHIBIT (above) .................... *

Footnote No. 62, See Footnote No. 40—SEALED EXHIBIT (above) .................... *

Footnote No. 63, See Attachment ............................................................................ 991

Footnote No. 64, See Footnote No. 40—SEALED EXHIBIT (above) .................... *

Footnote No. 65, See Attachments (2) and Footnote No. 52—SEALED EXHIBIT (above) ................................................................................................... 993, 995

Footnote No. 66 and 67, See Footnote No. 65 (above)........................................ 993, 995

Footnote No. 67, See Footnote No. 40—SEALED EXHIBIT (above) .................... *

Footnote No. 69, SEALED EXHIBIT ..................................................................... *

Footnote No. 70, SEALED EXHIBIT ..................................................................... *

Footnote No. 71, See Footnote No. 38 (above).................................... 942, 947, 223–242

Footnote No. 72, See Attachment ............................................................................ 996

Footnote No. 73, See Attachment ............................................................................ 1001

Footnote No. 74, See Footnote No. 55 (above) ........................................................ 986

Footnote No. 75, See Attachment ............................................................................ 1008

Footnote No. 77, See Attachment ............................................................................ 1011

Footnote No. 78 and 79, See Footnote No. 77 (above) ........................................... 1011

Footnote No. 81, See Footnote No. 40—SEALED EXHIBIT (above) .................... *

Page

VIII

Footnote No. 83, See Attachment (2)............................................................... 1044, 1058

Footnote No. 87, See Attachment and Footnote No. 65 (above).............. 1082, 993, 995

Footnote No. 88, See Footnote No. 40—SEALED EXHIBIT (above) .................... *

Footnote No. 92, SEALED EXHIBITS (2) ............................................................. *

Footnote No. 93, See Footnote No. 87 (above).......................................... 1082, 993, 995

Footnote No. 96, See Attachment ............................................................................ 1084

Footnote No. 100, See Footnote No. 83 (above) .............................................. 1044, 1058

Footnote No. 102, See Footnote No. 83 (above) .............................................. 1044, 1058

Footnote No. 105, See Footnote No. 43—SEALED EXHIBIT (above) .................. *

Footnote No. 106, See Footnote No. 40—SEALED EXHIBIT (above) .................. *

Footnote No. 107, See Attachment .......................................................................... 1086

Footnote No. 108, See Footnote No. 43—SEALED EXHIBIT (above) .................. *

Footnote No. 109, See Attachment .......................................................................... 1163

Footnote No. 110, See Footnote No. 107 (above) .................................................... 1086

Footnote No. 112, See Footnote No. 43—SEALED EXHIBIT (above) .................. *

Footnote No. 113, See Footnote No. 107 (above) .................................................... 1086

Footnote No. 114, See Footnote No. 43—SEALED EXHIBIT (above) .................. *

Footnote No. 115, See Footnote No. 43—SEALED EXHIBIT (above) .................. *

Footnote No. 116, See Footnote No. 43—SEALED EXHIBIT (above) .................. *

Footnote No. 117, See Footnote No. 43—SEALED EXHIBIT (above) .................. *

Footnote No. 119, SEALED EXHIBIT and See Footnote No. 40—SEALED 

EXHIBITS (above) ............................................................................................... *

Footnote No. 120, SEALED EXHIBIT ................................................................... *

Footnote No. 121, See Hearing Exhibit No. 21 ...................................................... 336

Footnote No. 122, SEALED EXHIBIT ................................................................... *

Footnote No. 123, SEALED EXHIBIT ................................................................... *

Footnote No. 124, SEALED EXHIBIT ................................................................... *

Footnote No. 125, See Footnote No. 83 (above) .............................................. 1044, 1058

Footnote No. 126, See Footnote No. 92—SEALED EXHIBIT (above) .................. *

Footnote No. 127, See Attachment .......................................................................... 1165

Footnote No. 130, SEALED EXHIBIT ................................................................... *

Footnote No. 142, See Attachment .......................................................................... 1167

Footnote No. 143, See Attachment .......................................................................... 1168

Footnote No. 144, See Attachment .......................................................................... 1181

Footnote No. 145, SEALED EXHIBIT ................................................................... *

Footnote No. 146, See Attachment .......................................................................... 1182

Footnote No. 147, See Attachment .......................................................................... 1183

Footnote No. 148, See Attachment .......................................................................... 1184

Footnote No. 149, See Footnote No. 143 (above) .................................................... 1168

Footnote No. 151, See Attachment .......................................................................... 1187

Footnote No. 152, See Attachments (2) ........................................................... 1188–1189

Footnote No. 153, See Attachment .......................................................................... 1192

Footnote No. 154, See Attachments (3) ............................................................... 1193–95

Footnote No. 155, SEALED EXHIBIT ................................................................... *

Footnote No. 156, See Attachment .......................................................................... 1198

Footnote No. 157, SEALED EXHIBIT ................................................................... *

Footnote No. 158, SEALED EXHIBIT ................................................................... *

Footnote No. 159, See Attachment .......................................................................... 1203

Footnote No. 160, See Attachment .......................................................................... 1208

Footnote No. 161, SEALED EXHIBIT ................................................................... *

Footnote No. 162, See Attachment .......................................................................... 1209

Footnote No. 164, SEALED EXHIBIT ................................................................... *

Footnote No. 165, See Attachment .......................................................................... 1215

Footnote No. 166, See Attachment .......................................................................... 1217

Page

IX

Footnote No. 167, See Attachments (4)........................................... 1230, 1232, 1236–37

Footnote No. 168, See Hearing Exhibit No. 16a (above) ....................................... 307

Footnote No. 169, See Attachment .......................................................................... 1262

Footnote No. 171 and 172, See Hearing Exhibit No. 16d (above) ........................ 324

Footnote No. 174, See Attachments (3)................................................. 1272, 1278, 1280

Footnote No. 175, See Attachment .......................................................................... 1282

Footnote No. 176, SEALED EXHIBIT ................................................................... *

Footnote No. 177, See Attachment and See Hearing Exhibit No. 16d 

(above).............................................................................................................. 1284, 324

Footnote No. 178, SEALED EXHIBIT ................................................................... *

Footnote No. 179, See Attachment .......................................................................... 1293

Footnote No. 180, SEALED EXHIBIT and See Footnote No. 143 (above) ........... 1168

Footnote No. 182, SEALED EXHIBIT ................................................................... *

Footnote No. 183 and 184, See Hearing Exhibit No. 16d (above) ........................ 324

Footnote No. 186, SEALED EXHIBIT and See Footnote No. 145—SEALED 

EXHIBIT (above) .................................................................................................. *

Footnote No. 187, See Attachment .......................................................................... 1305

Footnote No. 188, See Attachment and Footnote Nos. 154 and 187 

(above) ........................................................................................... 1307, 1193–95, 1305

Footnote No. 190, See Footnote No. 154 (above) ................................................ 1193–95

Footnote No. 193, See Attachment and Footnote No. 162 (above) ................ 1311, 1209

Footnote No. 194, See Attachment .......................................................................... 1313

Footnote No. 195, See Attachment .......................................................................... 1315

Footnote No. 197, See Attachment .......................................................................... 1355

Footnote No. 198, See Attachment .......................................................................... 1356

Footnote No. 200, See Attachment .......................................................................... 1357

Footnote No. 201, See Footnote No. 166 (above) .................................................... 1217

Footnote No. 202, See Attachment .......................................................................... 1406

Footnote No. 203, See Attachment .......................................................................... 1417

Footnote No. 204, See Attachment .......................................................................... 1418

Footnote No. 205, See Attachment .......................................................................... 1420

Footnote No. 206, See Attachment .......................................................................... 1423

Footnote No. 207, See Attachment .......................................................................... 1430

Footnote No. 208, See Attachment and Footnote No. 179 (above) ................ 1432, 1293

Footnote No. 209, See Attachment .......................................................................... 1435

Footnote No. 210, See Attachment .......................................................................... 1436

Footnote No. 211, See Attachment .......................................................................... 1439

Footnote No. 212, See Footnote No. 334—SEALED EXHIBIT (below) ............... *

Footnote No. 213, See Attachments (2)........................................................... 1440, 1444

Footnote No. 214, See Attachments (2)........................................................... 1455, 1463

Footnote No. 215, See Attachment .......................................................................... 1465

Footnote No. 216, See Attachment .......................................................................... 1466

Footnote No. 217, See Attachment .......................................................................... 1468

Footnote No. 218, See Footnote No. 214 (above) ............................................ 1455, 1463

Footnote No. 219, See Footnote No. 334—SEALED EXHIBIT (below) ............... *

Footnote No. 220, See Footnote No. 152 (above) ................................................ 1188–89

Footnote No. 221, See Footnote No. 152 and Hearing Exhibit No. 25 

(above)........................................................................................................ 1188–89, 365

Footnote No. 222, See Attachments (2) and (1) SEALED EXHIBIT, and Footnote No. 153 (above) ............................................................................... 1473–74, 1192

Footnote No. 223, See Attachments (3) and Hearing Exhibit No. 24 

(above) ............................................................................................. 1475, 1477–78, 357

Footnote No. 224, See Attachment .......................................................................... 1481

Footnote No. 225, See Attachment and Hearing Exhibit No. 25 

(above).............................................................................................................. 1483, 365

Page

X

Footnote No. 226, SEALED EXHIBIT ................................................................... *

Footnote No. 227, See Hearing Exhibit No. 24 (above) ......................................... 357

Footnote No. 228, See Attachments (2), Footnote No. 177 and Hearing Exhibit 

No. 14 (above) ....................................................................................... 1484, 1492, 302

Footnote No. 229, See Attachment .......................................................................... 1496

Footnote No. 231 and 232, See Footnote No. 229 (above) ..................................... 1496

Footnote No. 235, See Attachments (11), Footnote Nos. 203 and 211 and 

Hearing Exhibit No. 25 (above)........................................... 1517–31, 1417, 1439, 365

Footnote No. 236, See Hearing Exhibit No. 12 (above) ......................................... 297

Footnote No. 237, See Footnote No. 235 (above)..................... 1517–31, 1417, 1439,365

Footnote No. 238, See Attachments (2) and Footnote No. 235 (above) ............ 1532–33, 

1517–31, 1417, 1439, 365

Footnote No. 239, See Hearing Exhibit No. 25 (above) ......................................... 365

Footnote No. 241, See Footnote No. 235 (above)................ 1517–1531, 1417, 1439, 365

Footnote No. 242, See Footnote No. 202 (above) .................................................... 1406

Footnote No. 243, See Hearing Exhibit No 21 (above) .......................................... 336

Footnote No. 244, See Footnote No. 162 (above) .................................................... 1209

Footnote No. 245, See Attachment .......................................................................... 1534

Footnote No. 246, See Footnote No. 245 (above) .................................................... 1534

Footnote No. 248, See Attachment .......................................................................... 1538

Footnote No. 250, See Hearing Exhibit No 21 (above) .......................................... 336

Footnote No. 252, SEALED EXHIBITS (3) ........................................................... *

Footnote No. 253, SEALED EXHIBIT ................................................................... *

Footnote No. 255, See Footnote No. 252—SEALED EXHIBIT (above) ................ *

Footnote No. 256, See Hearing Exhibit No. 41 (above) ......................................... 466

Footnote No. 257, See Footnote No. 252—SEALED EXHIBITS (2) (above) ........ *

Footnote No. 260, SEALED EXHIBIT ................................................................... *

Footnote No. 261, See Footnote No. 252—SEALED EXHIBITS (2) (above) ........ *

Footnote No. 262, See Footnote No. 252—SEALED EXHIBIT (above) ................ *

Footnote No. 263, See Footnote No. 252—SEALED EXHIBITS (2) (above) ........ *

Footnote No. 268, See Attachment .......................................................................... 1544

Footnote No. 269, See Footnote No. 252—SEALED EXHIBITS (2) (above) ........ *

Footnote No. 270, See Footnote No. 253—SEALED EXHIBIT (above) ................ *

Footnote No. 272, See Footnote No. 252—SEALED EXHIBITS (2) (above) ........ *

Footnote No. 275, See Footnote No. 253—SEALED EXHIBIT (above) ................ *

Footnote No. 280, SEALED EXHIBIT and See Hearing Exhibit No. 38 (above) 452

Footnote No. 281, See Footnote No. 252—SEALED EXHIBIT (above) ................ *

Footnote No. 285, SEALED EXHIBIT ................................................................... *

Footnote No. 287, See Footnote No. 285—SEALED EXHIBIT (above) ................ *

Footnote No. 288, SEALED EXHIBIT ................................................................... *

Footnote No. 289, See Footnote No. 252—SEALED EXHIBIT (above) ................ *

Footnote No. 290, See Footnote No. 40 (above) ...................................................... 464

Footnote No. 291, SEALED EXHIBIT ................................................................... *

Footnote No. 292, See Footnote No. 252—SEALED EXHIBIT (above) ................ *

Footnote No. 294, See Footnote No. 280—SEALED EXHIBIT (above) ................ *

Footnote No. 295, SEALED EXHIBIT (2) .............................................................. *

Footnote No. 296, SEALED EXHIBIT ................................................................... *

Footnote No. 297, See Footnote No. 280—SEALED EXHIBIT (above) ................ *

Footnote No. 299, See Footnote No. 245 (above) .................................................... 1534

Footnote No. 300, SEALED EXHIBIT ................................................................... *

Footnote No. 302, See Attachment .......................................................................... 1551

Footnote No. 303, See Footnote No. 302 (above) .................................................... 1551

Footnote No. 304, SEALED EXHIBIT ................................................................... *

Footnote No. 305, See Hearing Exhibit No. 31 (above) ......................................... 392

Page

XI

Footnote No. 309, See Attachment and Hearing Exhibit No. 31 

(above).............................................................................................................. 1554, 392

Footnote No. 310, See Footnote No. 309 (above) .............................................. 1554, 392

Footnote No. 311, See Attachment and Footnote 248 (above) ....................... 1555, 1538

Footnote No. 312, See Footnote No. 252—SEALED EXHIBITS (2) (above) ........ *

Footnote No. 314, See Attachment .......................................................................... 1561

Footnote No. 316, See Attachment .......................................................................... 1563

Footnote No. 329, SEALED EXHIBIT ................................................................... *

Footnote No. 332, See Hearing Exhibit No. 16d (above) ....................................... 324

Footnote No. 333, See Footnote No. 179 (above) .................................................... 1293

Footnote No. 334, SEALED EXHIBIT ................................................................... *

Footnote No. 335, SEALED EXHIBIT ................................................................... *

Footnote No. 336, See Hearing Exhibit No. 16d (above) ....................................... 324

Footnote No. 337, SEALED EXHIBIT ................................................................... *

Footnote No. 338–339, See Footnote No. 337—SEALED EXHIBIT (above) ........ *

Footnote No. 340, SEALED EXHIBIT ................................................................... *

Footnote No. 341, See Attachments (2) and Footnote No. 337—SEALED EXHIBIT (above) ............................................................................................... 1565, 1567

Footnote No. 342, See Footnote No. 178—SEALED EXHIBIT (above) ................ *

Footnote No. 343, SEALED EXHIBITS (2) ........................................................... *

Footnote No. 344–346, See Footnote No. 343—SEALED EXHIBITS (2) (above) *

Footnote No. 347, SEALED EXHIBIT ................................................................... *

Footnote No. 348–350, See Footnote No. 347—SEALED EXHIBIT (above) ........ *

Footnote No. 349, See Footnote No. 334—SEALED EXHIBIT (above) ................ *

Footnote No. 351–353, See Footnote No. 343—SEALED EXHIBIT (above) ........ *

Footnote No. 354, See Footnote No. 337—SEALED EXHIBIT (above) ................ *

Footnote No. 355, See Footnote No. 178—SEALED EXHIBIT (above) ................ *

Footnote No. 356, 357, See Footnote No. 337—SEALED EXHIBIT (above) ....... *

Footnote No. 358–362, See Footnote No. 334—SEALED EXHIBIT (above) ........ *

Footnote No. 364, See Footnote No. 334—SEALED EXHIBIT (above) ................ *

Footnote No. 365, See Footnote No. 213 (above) ............................................ 1440, 1444

Footnote No. 366, SEALED EXHIBIT ................................................................... *

Footnote No. 367, SEALED EXHIBIT ................................................................... *

Footnote No. 368, See Footnote No. 222 (above) ...................................... 1473–74, 1192

Footnote No. 369, See Footnote No. 335—SEALED EXHIBIT (above) ................ *

Footnote No. 370, See Attachment and Footnote No. 343—SEALED EXHIBIT 

(above) ................................................................................................................... 1568

Footnote No. 371, SEALED EXHIBIT ................................................................... *

Footnote No. 372, See Footnote No. 347—SEALED EXHIBIT (above) ................ *

Footnote No. 373–374, See Footnote No. 334—SEALED EXHIBIT (above) ........ *

Footnote No. 375, See Footnote No. 222 (above) ...................................... 1473–74, 1192

Footnote No. 376, See Footnote No. 213 (above) ............................................ 1440, 1444

Footnote No. 377–378, See Footnote No. 334—SEALED EXHIBIT (above) ........ *

Footnote No. 379, See Attachment .......................................................................... 1574

Footnote No. 380, See Attachment and Footnote No. 214 (above) ........................ 1577

Footnote No. 381–383, See Footnote No. 178—SEALED EXHIBIT (above) ........ *

Footnote No. 384, See Footnote No. 182—SEALED EXHIBIT (above) ................ *

Footnote No. 385, See Footnote No. 334—SEALED EXHIBIT (above) ................ *

Footnote No. 386, See Footnote No. 347—SEALED EXHIBIT (above) ................ *

Footnote No. 387–390, See Footnote No. 334—SEALED EXHIBIT (above) ........ *

Footnote No. 391, See Footnote No. 367—SEALED EXHIBIT (above) ................ *

Footnote No. 409, See Footnote No. 343—SEALED EXHIBIT (above) ................ *

(1)

MONEY LAUNDERING AND FOREIGN CORRUPTION: ENFORCEMENT AND EFFECTIVENESS 

OF THE PATRIOT ACT 

THURSDAY, JULY 15, 2004

U.S. SENATE, 

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,

OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:06 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Norm Coleman, 

Chairman of the Subcommittee, presiding. 

Present: Senators Coleman, Levin, Fitzgerald, and Lautenberg. 

Staff Present: Raymond V. Shepherd, III, Staff Director and 

Chief Counsel; Leland B. Erickson, Counsel; Elise J. Bean, Minority Staff Director/Chief Counsel; Robert L. Roach, Minority Counsel 

and Chief Investigator; Laura Stuber, Minority Counsel; Brian C. 

Plesser, Minority Counsel; Christopher Kramer, Minority Professional Staff; Julie Davis, Counsel to the Minority; Clare Diegel, Intern; Zachary Schram, Intern; Ashley Litwin, Intern; and Mary D. 

Robertson, Chief Clerk. 

OPENING STATEMENT OF SENATOR COLEMAN 

Senator COLEMAN. This hearing of the Permanent Subcommittee 

on Investigations is called to order. 

Good morning and welcome to today’s hearing on Money Laundering and Foreign Corruption. I want to thank Senator Levin for 

initiating this investigation last year. One of the unique things 

about the Permanent Subcommittee on Investigations is the ability 

of each side to initiate its own investigations. And while we do not 

always see eye to eye, we both value the history of close cooperation in the conduct of each investigation. 

Just on a personal note, Senator Levin, to you and your staff, 

they really have done an extraordinary job in highlighting things 

that need to be addressed, and it is a great pleasure to be able to 

work with you and work on these kind of matters. 

Furthermore, I would like to point out that this Subcommittee, 

through the efforts of Senator Levin, has conducted past investigations into money laundering activities using U.S. financial institutions. These hearings provided the foundation for some of the antimoney laundering provisions contained in Title III of the USA Patriot Act. Again I commend Senator Levin for continuing to address 

this important issue. 

2

This investigation has developed evidence of poor compliance and 

lax oversight regarding Federal laws. In this case, laws designed 

to protect the integrity of the international financial system and 

combat money laundering. 

Officials from Riggs Bank will testify that they failed to provide 

internal controls, sound training, and effective monitoring to guarantee that the bank complied with Federal laws governing the reporting of large financial transfers and suspicious activity. This 

breakdown led to the following findings by the Subcommittee: One, until recently Riggs held approximately $750 million worth 

of accounts connected to Equatorial Guinea. A State Department 

report on Equatorial Guinea identified poor fiscal management, a 

lack of transparency, and little evidence that the country’s oil 

wealth has been used for public good. In fact, most of the oil wealth 

appears to be concentrated in the hands of top government officials. 

Despite these concerns, Riggs serviced these accounts with little 

attention to the bank’s anti-money laundering obligations. This resulted in the withdrawal of $35 million from the Equatorial Guinea 

oil account to various companies, some believed to be owned by the 

Equatorial Guinea president. Furthermore, Riggs failed to record 

effective account opening information, a requisite for accurate antimoney laundering reporting. As a result, currency transaction reports for cash deposits of $11.5 million over a 2-year period failed 

to identify the owner as a high-ranking Equatorial Guinean Government official. 

Two, in 1994, Riggs began a significant banking relationship 

with the former of dictator of Chile, Augusto Pinochet. For 8 years 

Riggs officials did not verify the source of his wealth, nor did they 

disclose the existence of these accounts to the OCC despite an OCC 

request for a list of accounts held by politically exposed persons. 

Verification of a legitimate source of wealth is fundamental to ensure the U.S. banking system is not used to facilitate the movement of funds stemming from illegal activity. 

Three, poor internal controls apparently made it easy for Simon 

Kareri, the account manager for Equatorial Guinea, to embezzle 

$1.2 million from that account. 

And four, since 1997, Riggs has been cited by the OCC for failure 

to ensure sound internal controls, inadequate training to identify 

and monitor suspicious activity, and a lack of independent audits 

to ensure Bank Secrecy Act compliance. In fact, 10 different examinations between 1997 and 2002 raised these issues over and over 

again. I am concerned whether bank managers understand the important of anti-money laundering compliance. 

Equally important, I am concerned whether the OCC is effectively providing the proper oversight of U.S. financial institutions 

to ensure that bank managers understand their obligations to comply with anti-money laundering statutes. Clearly, the OCC raised 

numerous issues with respect to anti-money laundering compliance. 

Clearly, the bank failed to correct these issues in a timely manner. 

Although the OCC identified the problems, the problem is that the 

issues persisted. If the OCC fails to make banks get it, we all bear 

the consequence. 

Why are these findings important? Partly because some of the 

other accounts at Riggs were owned by Saudi officials, and checks 

3

drawn on certain accounts may have benefitted two of the September 11, 2001 hijackers. Under the leadership of Chairman Collins, the full Committee on Governmental Affairs is currently investigating the history of these accounts to see whether any of the 

money was used to finance terrorist activities. I commend her diligence in looking into this issue and look forward to the results of 

her investigation. 

In today’s world, access to the international financial system is 

almost mandatory for any large enterprise, whether it is legal or 

illegal. Crime will always occur. But once it reaches a certain size, 

the ability to use the international system to make payments, 

transfer resources, and invest funds becomes critical. Participation 

in the system facilitates further growth. Exclusion from it imposes 

large transaction costs. In addition, the spread of terrorism often 

relies on the ability to transfer large sums of money overseas 

quickly and anonymously. 

As the leaders of the world economy, American financial firms 

often serve as the gatekeepers to the financial system. While foreign firms may offer access with fewer scruples, they usually lack 

the financial sophistication, access to resources, and legitimacy 

that American companies can give to their clients. If American 

companies face stricter standards than their international competitors, it is at least partly because they play a more critical role. 

There are legitimate debates about exactly what regulatory 

standards the government should impose on U.S. firms. Some have 

argued that some of the constraints on U.S. banks are counterproductive to our economic and strategic interest because they only 

succeed in driving transactions to European and Asian banks. 

These are the sort of debates that our political process ought to engage in. 

Indeed, today’s third panel is largely devoted to an examination 

of whether new transparency initiatives would help or hurt the 

common goal of ensuring that natural resources such as oil, diamonds, or copper foster economic development and prosperity rather than dictatorship, corruption, and war in the world’s poorest 

countries. I look forward to examining the issues with respect to 

American oil companies that operate in high-risk environments 

abroad and look forward to an informative discussion on whether 

transparency initiatives would facilitate economic and political stability as well as increase prosperity in developing countries. 

Last, Americans must know that financial institutions operating 

in the United States will respect and implement banking laws that 

combat money laundering and suspicious activity. If the private 

sector does not respect Congress’ legislative powers, if management 

gives implementation of laws such as Know-Your-Customer and the 

Patriot Act scant attention, then we need a different, more intrusive, type of oversight to make sure they are enforced. 

I believe in the primacy of the private sector. But freedom always 

implies a corresponding responsibility to respect the rules that society imposes on the market. Today’s testimony will show that top 

officials did not always justify their freedom from aggressive oversight with a willingness to respect and implement their social duties. 

4

As always, I look forward to Senator Levin’s opening statement 

and especially his questions. Senator Levin. 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Mr. Chairman, first thank you for holding this 

hearing. My particular thanks and special thanks to you for all the 

support that you and your staff have provided to this investigation. 

That support has been absolutely invaluable, and it is in keeping 

with the unique traditions of this unique Subcommittee. 

We live in a post-September 11 world, as our Chairman has said. 

After the attack on America we strengthened our anti-money laundering laws. Osama bin Laden boasted that his modern new recruits knew the ‘‘cracks’’ in the ‘‘Western financial systems’’ like 

they knew the ‘‘lines in their hands.’’ That chilling statement 

helped fuel a new effort to strengthen our defenses against terrorists, corrupt dictators and others who would use our financial systems against us. Part of that effort was Congress’ enactment of the 

Patriot Act which in Title III strengthened U.S. laws to stop money 

laundering, foreign corruption, and terrorist financing. 

But even before the Patriot Act, we had laws and regulations to 

stop money laundering. In fact since 1987 the Office of the Comptroller of the Currency (OCC), has required nationally-chartered 

banks to establish anti-money laundering programs to ensure that 

those banks are not misused by criminals. The Patriot Act was intended to build on that existing foundation to strengthen our defenses against money launderers. 

The problem is that Riggs Bank right here in the heart of the 

Nation’s Capital ignored its anti-money laundering obligations before the Patriot Act and continued to ignore them afterward. The 

bank did not get serious in part because, in the past, when bank 

regulators pointed out problems with Riggs’ anti-money laundering 

(AML) controls, if the bank promised to do better, the regulators 

let it go. The regulators continued to tolerate the bank’s weak antimoney laundering program, continued to accept excuses when deficiencies were not corrected, and continued to hold off on tough enforcement measures. 

In the meantime, Riggs operated its bank with blatant disregard 

for its anti-money laundering obligations. Two sets of accounts tell 

the story. 

First, Augusto Pinochet. In 1994, top Riggs officials traveled to 

Chile and asked General Pinochet, a notorious military leader accused of involvement with death squads, corruption, arms sales 

and drug trafficking if he would like to open an account at Riggs 

Bank here in Washington, DC. Mr. Pinochet said yes. The bank 

opened an account for him personally, helped him establish two offshore shell corporations in the Bahamas called Ashburton and 

Althorp, and then opened more accounts in the name of those shell 

corporations both here and in the United Kingdom. General 

Pinochet eventually deposited between $4 million and $8 million in 

his Riggs accounts. 

In 1998, when General Pinochet was arrested in London on 

charges of crimes against humanity, and a court issued an order 

seeking to freeze his bank accounts, Riggs quietly helped him move 

5

money from London to the United States and, needless to say, did 

not alert law enforcement or the courts to his accounts. 

In the year 2000, after a British newspaper alleged that General Pinochet had over $1 million in accounts at Riggs Bank, Riggs altered the name on his personal account, changing it from ‘‘Augusto 

Pinochet Ugarte’’ to ‘‘A.P. Ugarte.’’ When General Pinochet was released from house arrest in London in 2000, and then returned to 

Chile where he had immunity from prosecution, top Riggs officials 

again visited him in Chile. From the year 2000 to 2002, Riggs sent 

him batches of cashiers checks, each for $50,000. Riggs used these 

checks to send him $1.9 million in all. On several occasions Riggs 

sent cashiers checks drawn on Riggs’ own administrative accounts 

so that the money could not be traced back to an account number 

associated with General Pinochet. 

In the year 2000, when regulators asked Riggs for a list of accounts controlled by political figures, Riggs provided a short list 

that omitted any mention of General Pinochet. When regulators 

stumbled by chance on the Pinochet accounts 2 years later, the 

bank at first tried to withhold information. Then instead of freezing 

the funds, Riggs closed the accounts and sent the funds to General 

Pinochet for him to deposit with another cooperative bank. 

The bottom line here is that Riggs actively assisted General 

Pinochet to evade legal proceedings related to his bank accounts 

and ignored its duty to safeguard the bank against handling funds 

that could be construed as the product of money laundering or foreign corruption. 

While regulators are to be commended for finding these accounts 

and getting Riggs to comply with its anti-money laundering obligations, what is difficult to understand or accept is the agency’s failure to impose any penalty on Riggs for its misconduct. The evidence indicates that the OCC did not even consider taking an enforcement action in 2002. Worse, the OCC Examiner-in-Charge at 

Riggs ordered the bank examiners who investigated the Pinochet 

accounts not to include their closing memorandum or work papers 

in the agency’s electronic database, so that the Pinochet examination results essentially disappeared from Riggs’ regulatory record 

at the OCC. Shortly thereafter, that same Examiner took a job 

with Riggs Bank. 

The second example of accounts opened by Riggs involves an African country, Equatorial Guinea. For the last 5 years Equatorial 

Guinea has been experiencing an oil boom and large oil revenues. 

The country is also known for a culture of corruption and human 

rights violations. In 2003, the U.S. Department of State wrote that 

there is ‘‘little evidence that the Government used the country’s oil 

wealth for the public good. Most oil wealth appears to be concentrated in the hands of top Government officials while the majority of the population remained poor. Most foreign economic assistance was suspended due to the lack of economic reform and the 

Government’s poor human rights record.’’

Riggs opened its first account for Equatorial Guinea in 1995. 

Over the next 8 years, Riggs also opened accounts for the President 

of Equatorial Guinea, his wife, his son, and other high-ranking 

E.G. officials. Altogether, Riggs opened 60 accounts and certificates 

of deposit for the E.G. government, E.G. officials and their family 

6

members, and watched the assets grow from $100 million to $700 

million, making Equatorial Guinea the bank’s largest single customer. 

Riggs offered the E.G. officials the same sorts of services that it 

offered General Pinochet. For example, Riggs helped the E.G. 

President set up an offshore shell corporation in the Bahamas, 

called Otong. Riggs then opened three accounts in the name of that 

offshore shell corporation. Over the next 3 years, from 2000 to 

2002, Riggs allowed the E.G. President to make repeated cash deposits—and I emphasize cash deposits—into the Otong account of 

$1 million, $2 million, and even $3 million at a time. At least one 

of these deposits was personally brought into the Riggs Bank by 

the Riggs account manager who handled the E.G. accounts. He carried the funds in a suitcase of plastic-wrapped dollar bills weighing 

60 pounds or more. If that kind of cash deposit does not make a 

bank sit up and ask questions, I am not so sure anything will. 

And there is more. Additional hundreds of thousands of dollars 

in cash were repeatedly deposited into accounts opened for the E.G. 

President’s wife and for her brother, the E.G. Ambassador to the 

United States. There were substantial withdrawals as well, for expensive homes, cars, and credit card bills. 

International wire transfers moved millions of dollars in and out 

of E.G. accounts and across international lines. They included 

wires that, over 2 years, took $35 million out of an account holding 

oil revenues for the people of Equatorial Guinea, and sent the 

funds to two unknown offshore companies called Kalunga and 

Apexside. Riggs states in its prepared testimony today that these 

overseas companies ‘‘appear to be controlled by members of the 

government of Equatorial Guinea.’’

Riggs learned about the suspicious nature of those companies 

when, in August 2003, it started analyzing the wire transfer activity in the E.G. oil account and asking questions. That was 6 

months after Riggs received a subpoena from this Subcommittee requesting information about the E.G. accounts at the bank. If Riggs 

had started asking the same questions 3 years earlier, when the 

wire transfers first started, Riggs would not have ended up facilitating $35 million in suspicious wire transfers. 

There were other suspicious transactions as well. Nearly 

$500,000 in wire transfers went from the E.G. Government’s oil account to the personal account of an E.G. official. Another $1 million 

was wired out of the oil account bound for another bank in an account belonging to the Jadini Holdings, Ltd., an offshore corporation that is under the control of the wife of the Riggs’ employee 

who manages the E.G. accounts. 

At the same time all this activity was going on, Federal bank 

regulators were repeatedly expressing concerns about deficiencies 

in Riggs’ anti-money laundering controls, but doing very little to 

compel the bank’s compliance with the law. OCC examiners pointed out that the bank failed to identify its high risk accounts or 

monitor for suspicious activity. They warned the bank repeatedly 

that the background checks on clients were either not being done 

or had inadequate information. They stated repeatedly that the 

bank’s anti-money laundering training was weak, and the internal 

7

audits needed to ensure a strong anti-money laundering program 

were not being done. 

From 1997 to 2002, bank examiners identified these and other 

fundamental, longstanding problems with Riggs’ anti-money laundering program. In response, the bank repeatedly committed to correcting the deficiencies, but never actually did so. Round after 

round after round. 

In November 2002, media stories began alleging possible connections between certain Riggs accounts associated with Saudi Arabia 

and two of the September 11 hijackers. Two months later—as our 

Chairman said, by the way, that is being investigated by the full 

Committee under Chairman Collins’ leadership—2 months later, in 

January 2003, another media story disclosed the Equatorial Guinea 

accounts at Riggs, and alleged that E.G. officials were misusing the 

oil revenues in these accounts for personal gain. 

As public attention on Riggs increased, so did the willingness of 

regulators to impose public enforcement actions on the bank. It still 

took another year for agencies to impose a $25 million civil fine on 

Riggs. 

There’s yet another troubling story here too. While we were reviewing Riggs’s bank records for the E.G. accounts, we came across 

a number of large payments by U.S. oil companies into the accounts of E.G. officials or their relatives. These payments were as 

high as $250,000 at a time. We investigated and learned that these 

payments were being made for a variety of reasons, such as land 

purchases, office leases, and security services. In one instance an 

oil company paid more than $450,000 over 4 years to a 14-year-old 

relative of the E.G. President to rent office space. 

In another instance, oil companies agreed, as part of their oil 

production contracts with the E.G. Government, to contribute funds 

to support E.G. students studying abroad. We were able to document total payments of at least $4 million for this purpose by 6 oil 

companies. The evidence also indicates that many of the students 

receiving this financial support were the children of wealthy and 

powerful government officials in Equatorial Guinea. The funds paid 

for their travel to the United States, their living expenses while 

here, and their tuition bills. 

In addition to making those types of payments, some oil companies have actually gone into business with E.G. companies that are 

owned in whole or in part by Equatorial Guinea officials. 

ExxonMobil, for example, has set up an oil distribution business in 

Equatorial Guinea. It is 85 percent owned by ExxonMobil and 15 

percent owned by Abayak, a company controlled by the President 

of Equatorial Guinea. Marathon has gone into business with a company called GEOGAM to operate two plants in Equatorial Guinea. 

GEOGAM is billed as a state-owned company, but Marathon has 

been told by a GEOGAM insider that the company is only 25 percent owned by the state, and 75 percent owned by Abayak, that 

same company controlled by the E.G. President. 

Africa has become an increasingly important source of oil for the 

United States and the world. Nigeria, Angola, Gabon and Equatorial Guinea now supply about 15 percent of our oil needs, and 

that is projected to grow to 20 or 25 percent over the next few 

years. It is critical to fight corruption in a part of the world with 

8

so much abject poverty. Corrupt leaders are also more vulnerable 

to violence, terrorism, and armed conflict. Neither our companies 

doing business abroad, nor our banks here at home should be contributing in any way to that corruption problem. 

Five years ago, in 1999, as our Chairman mentioned, this Subcommittee held a hearing on foreign political leaders and their family members who were looting their countries’ treasuries and stashing millions of dollars in U.S. banks. Back then, the laundering of 

money from corrupt foreign activities that took place wholly outside 

the United States might not have supported a U.S. criminal prosecution. But in 2001, the Patriot Act made it clear that monies obtained from foreign corrupt activities and deposited in U.S. banks 

could support a U.S. money laundering prosecution. We also tightened the requirements for banks to use due diligence when opening 

accounts in order to stop foreign dictators and criminals from using 

U.S. banks for their ill-gotten gains. 

The Riggs case history shows we still have a long way to go. The 

September 11 attack taught us that money laundering is dangerous 

to this country. We cannot allow our financial systems to be misused by terrorists, corrupt dictators, or other criminals. 

The OCC has to do its duty under the law to stop money laundering. Folks at the top of OCC must stop tolerating weak antimoney laundering programs and start using the enforcement tools 

that they have, including cease and desist orders and civil fines. 

Federal regulators have to issue the overdue regulations implementing the due diligence requirements in the Patriot Act. They 

are 3 years late in doing so. 

Regulators should also start including regular anti-money laundering assessments in the annual reports that they give banks, instead of treating anti-money laundering issues on an ad hoc basis. 

Those assessments should be made publicly available so that the 

banks and regulators have an incentive to improve, and other 

banks will know who has poor anti-money laundering controls. 

Another important change would be for Congress to enact a oneyear cooling off period before senior bank examiners can accept a 

job at the banks that they oversee. We should also pass legislation 

here at home and work internationally to require oil companies to 

disclose all the payments that they are making to a country’s government officials and their families. 

Again, I want to thank you, Mr. Chairman, for your total support 

of this effort. 

Senator COLEMAN. Thank you, Senator Levin. 

I would now like to recognize our first panel to today’s hearing. 

I welcome Lawrence Hebert, President and CEO of Riggs Bank; 

Raymond M. Lund, the former Executive Vice President of the 

International Banking Group of Riggs Bank; and Ashley Lee, the 

Executive Vice President and Chief Risk Officer of Riggs Bank. 

As I mentioned in my opening statement this morning, this hearing focuses on money laundering and foreign corruption. The purpose of this panel is to examine problems that Riggs Bank had in 

implementing Federal banking requirements to monitor and detect 

money laundering and other suspicious activity. 

I appreciate your attendance at today’s important hearing, and 

I am anxious to hear your testimony. 

9

Before we begin, pursuant to Rule 6, all witnesses who testify at 

this Subcommittee are required to be sworn. At this time I would 

ask you all to please stand and raise your right hand. 

Do you swear that the testimony you are about to give before 

this Subcommittee is the truth, the whole truth, and nothing but 

the truth, so help you, God. 

Mr. HEBERT. I do. 

Mr. LUND. I do. 

Mr. LEE. I do. 

Mr. KARERI. I do. 

Senator COLEMAN. Gentlemen, we are using a timing system. 

Please be aware when the orange light comes on you will have 

about a minute left. Your full statements will be entered into the 

record, so I would ask at that point to summarize your testimony. 

We ask that you limit your oral testimony to no more than 10 minutes. I understand actually there will be a single statement on behalf of the folks from Riggs. 

Mr. Kareri, I understand that you are accompanied by counsel. 

Counsel, please identify yourself for the record and spell your last 

name for the court reporter. 

Mr. SHAPIRO. Mr. Chairman, I am Jonathan Shapiro. That is 

spelled S-h-a-p-i-r-o. 

Senator COLEMAN. Mr. Shapiro, I understand that your client 

will be asserting his Fifth Amendment rights due to ongoing criminal proceedings? 

Mr. SHAPIRO. That is correct, at my advice. 

Senator COLEMAN. Thank you. 

Mr. Kareri, again, I understand from your counsel that you intend to invoke your Fifth Amendment privilege. I want the record 

to reflect that this Subcommittee has always taken care to treat respectfully a witness who asserts a Fifth Amendment privilege. That 

said, I would like to see if I could explore just a few matters with 

you. 

Mr. Kareri, while at Riggs Bank were you the account manager 

for Equatorial Guinea country accounts and for the personal accounts of the nation’s political leaders and their families? 

Mr. KARERI. Mr. Chairman, there is nothing I would like to do 

more than answer your question today. However, I must heed the 

advice of my counsel and invoke my Fifth Amendment rights under 

the Constitution and refuse to answer the question. 

Senator COLEMAN. Mr. Kareri, one other question. Were you or 

any of your family members beneficial owners of any private investment companies? 

Mr. KARERI. Once again, Mr. Chairman, I must refer to my previous answer. 

Senator COLEMAN. Mr. Kareri, you have been asked specific 

questions about matters that occurred while you were employed at 

Riggs. In response to each question you have asserted your Fifth 

Amendment privilege. Is it your intention to assert your Fifth 

Amendment privilege to any question that might be directed to you 

by the Subcommittee today? 

Mr. KARERI. Yes, it is, Mr. Chairman. 

10

1The prepared statement of Riggs Bank, N.A. appears in the Appendix on page 76. 

Senator COLEMAN. Given the fact that you are asserting a Fifth 

Amendment right against self-incrimination to all questions asked 

of you by this Subcommittee, you are excused. 

Mr. KARERI. Thank you very much. 

Mr. SHAPIRO. Thank you. 

Senator COLEMAN. Mr. Hebert, it is my understanding that you 

will be presenting a joint statement this morning on behalf of Mr. 

Lund, Mr. Lee, and yourself; is that correct? 

Mr. HEBERT. Yes, Mr. Chairman. 

Senator COLEMAN. To reiterate what I said before, please limit 

your oral statement to 10 minutes. Your entire written testimony 

will be presented into the record. 

With that, Mr. Hebert, you will proceed. I will turn the gavel 

over to my colleague, Senator Levin, and will be back shortly. You 

may proceed, Mr. Hebert. 

JOINT TESTIMONY OF LAWRENCE I. HEBERT, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, RIGGS BANK N.A.; RAYMOND M. 

LUND, FORMER EXECUTIVE VICE PRESIDENT, INTERNATIONAL BANKING GROUP, RIGGS BANK N.A.; AND R. ASHLEY LEE, EXECUTIVE VICE PRESIDENT AND CHIEF RISK OFFICER, RIGGS BANK N.A.1

Mr. HEBERT. Thank you, Mr. Chairman. 

Mr. Chairman and Senator Levin, thank you for providing me 

the opportunity to appear before you today. My name is Lawrence 

Hebert, and I am President and Chief Executive Officer, a position 

that I have held since February 14, 2001. I am also a member of 

the Boards of Directors of Riggs Bank and the Riggs National Corporation, the holding company. 

Senator LEVIN [presiding]. Could you talk just a little bit louder, 

Mr. Hebert? 

Mr. HEBERT. Excuse me, Mr. Chairman. 

Senator LEVIN. Is that mike on there; is that light on? 

Mr. HEBERT. The light is on. I will speak up. Would you like me 

to begin again? 

Senator LEVIN. No, you can keep going. 

Mr. HEBERT. As you requested, also joining me here today on the 

panel are R. Ashley Lee, Executive Vice President and Chief Risk 

Officer of Riggs, and Raymond Lund, who served as Executive Vice 

President of Riggs Bank in charge of the International Banking 

Group until earlier this year. 

Riggs has been privileged to serve the banking needs of our Nation’s capital for nearly two centuries. During that time, Riggs has 

served such historical figures as President Abraham Lincoln and 

American Red Cross founder Clara Barton. Riggs has also assisted 

in some important historical transactions, such as supplying the 

gold for the purchase of the State of Alaska. Today, Riggs is the 

oldest independent bank headquartered in Washington, DC, serving the community with more than 45 locations in the metropolitan 

area. 

Yet, without a doubt, this past year has been the most challenging we have faced. I would like to address with you today some 

11

issues of the past and how we at Riggs have responded to these 

challenges. 

Looking back, it is clear that Riggs did not accomplish all that 

it needed to. Specifically, with respect to the improvements that 

were outlined by the Office of the Comptroller of Currency in its 

examinations, we regret that we did not more swiftly and more 

thoroughly complete the work necessary to fully meet the expectations of our regulators. For this, the bank accepts full responsibility. At the same time, let me assure you, Riggs takes compliance 

with laws and regulations very seriously. We are committed to addressing and solving each and every one of our issues and working 

toward complete and total compliance with all regulatory and other 

requirements. 

Looking forward, we recognize that Riggs will be under close 

scrutiny. We will be measured against high standards. Our efforts 

are characterized by the core values of honesty, integrity and responsibility. I can assure you that I and our more than 1,300 employees are doing everything in our power to measure up. Riggs 

has already taken a wide range of aggressive steps to improve our 

compliance capabilities. 

While we acknowledge that we have more to do, we have significantly bolstered our senior management and added a well-regarded 

banker to the Riggs National Corporation Board. Lawrence Connell, a respected banker and former regulator is now the Vice 

Chairman of Riggs Bank. He is taking the lead in all of our regulatory relationships. Anthony Terracciano, a highly-regarded banking executive is now an outside director of Riggs National Corporation and serves as an independent member of our Audit Committee. His experience leading First Fidelity and Dime Bancorp 

will be extremely valuable to use. And David Caruso, an authoritative expert on bank security and anti-money laundering, now fills 

the position of Executive Vice President and Director of Compliance 

and Security. He joined the bank a little over a year ago and has 

assembled a completely new compliance and security group to address the bank’s needs in this area. David’s staff of more than 25 

includes former FBI and Secret Service officials, who on average 

have more than 15 years of investigative experience. 

In addition, we have taken other significant steps. We have upgraded our entire technology infrastructure, investing nearly $60 

million, which will enable us to more effectively and efficiently 

comply with laws and regulations. We have adopted and amended 

a host of policies and procedures to improve detection, monitoring 

and reporting of suspicious activities. We have improved and implemented a comprehensive in-house regulatory compliance training 

program, which is mandatory for all of our senior management and 

other relevant personnel. We have reduced our risk exposure by 

committing to exit or sell a considerable portion of our international businesses, including all high-risk embassy banking relationships that do not meet certain strict criteria. We have engaged 

several of the Nation’s premier experts to assist us in our compliance efforts, including Promontory Financial Group, and we have 

retained PriceWaterhouseCoopers to provide internal audit services. We are acting forcefully to comply with all Federal rules and 

regulations, and to cooperate fully with our regulators. 

12

1See Exhibit 37 which appears in the Appendix on page 422. 

I also want to take the opportunity to clear up some 

misperceptions that have appeared in the media. First, Riggs has 

not been accused of money laundering. Our regulators have been 

critical of our record keeping and our reporting and control systems, and our employees are working aggressively to resolve these 

issues. Second, Riggs is fully and actively cooperating with all law 

enforcement efforts. Third, our actions have demonstrated we have 

terminated, and will continue to terminate, relationships with customers who we believe present undue compliance or other risk to 

Riggs. 

Finally, Riggs is financially strong. The civil money penalties we 

have paid do not in any way affect our customers. The bank continues to have excellent credit quality, and both Riggs National 

Corporation and Riggs Bank have more than enough capital to remain well capitalized under all relevant regulatory definitions. 

Riggs Bank is proud of the strong history it shares with the city 

of Washington, DC and with the U.S. Government. For nearly two 

centuries Riggs has worked hard to build a solid reputation in the 

city and the banking community for integrity and trustworthiness. 

I can assure you that we are dedicated to resolving any and all outstanding issues. 

Thank you, Mr. Chairman. 

Senator LEVIN. Thank you very much, Mr. Hebert. Mr. Hebert, 

Exhibit 37 1 in your book is your Know-Your-Customer policy 

adopted by Riggs in January 2001. The policy reads as follows in 

the introduction. ‘‘It is the policy of Riggs and its subsidiaries to 

conduct business only with individuals, companies, trusts, that we 

know to be of good reputation, and who to the best of our knowledge, through proper and due diligence, have accumulated their 

wealth through legitimate and honorable means. Riggs will not accept as a customer any individual, company or trust relationship 

whom we have any reason whatsoever to believe has obtained 

funds through illegal or illicit means. Riggs requires that information provided be scrutinized and corroborated to ensure the validity 

of the information. This information will be used in the determination of whether to accept an individual or entity as a Riggs customer.’’

That was the policy that Riggs was supposed to be following in 

servicing and selecting clients, but our own government, the U.S. 

Government, criticized the lack of transparency in Equatorial 

Guinea’s handling of its oil revenues. This is an excerpt from the 

U.S. State Department’s 2000 report on Equatorial Guinea. It was 

issued in February 2001, just before you had your luncheon with 

President Obiang of Equatorial Guinea. This is the U.S. State Department excerpt now. ‘‘The investment and other uses of oil revenues lacked transparency despite repeated calls in previous years 

from international financial institutions and citizens for greater financial openness. Poor fiscal management and lack of public accounting transparency in national finances have undermined the 

country’s economic potential. Little evidence is apparent that the 

country’s oil wealth is being devoted to the public good. The govVerDate 0ct 09 2002 08:29 Oct 15, 2004 Jkt 095501 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 C:\DOCS\95501.TXT SAFFAIRS PsN: PHOGAN
13

1See Exhibit 12 which appears in the Appendix on page 297. 

ernment’s human rights record remained poor and continued to 

commit serious abuses.’’

That was a public statement of our State Department. Shortly 

after that report was released, some senior officials and board 

members of Riggs hosted a luncheon for President Obiang. Did you 

attend that lunch? 

Mr. HEBERT. Yes. 

Senator LEVIN. Did anyone discuss this public statement of our 

government about what was going on in Equatorial Guinea at that 

lunch? 

Mr. HEBERT. No, Senator. 

Senator LEVIN. On May 17, you and other senior Riggs officials, 

including Mr. Allbritton, Chairman of the Board of Riggs, wrote a 

letter to the President of Equatorial Guinea, and that is Exhibit 

12.1 In that letter you wrote the following: ‘‘. . . that we have 

formed a committee of the most senior officers of Riggs Bank that 

will meet regularly to discuss our relationship with Equatorial 

Guinea and how best we can serve you.’’ ‘‘This committee,’’ you 

wrote, ‘‘which includes the undersigned, has held its first meeting, 

and requests you to provide us with any projects that you would 

like us to review on your behalf and to make suggestions. We believe that our relationship offers a significant opportunity to provide sound financial counseling that will directly benefit the citizens of Equatorial Guinea.’’

Did that committee meet? 

Mr. HEBERT. Yes. 

Senator LEVIN. Who attended those meetings? 

Mr. HEBERT. The attendees would have been myself, Bob Roane, 

perhaps Tim Coughlin, Ray Lund, and the former officer in charge 

of that account. We would have met——

Senator LEVIN. Mr. Kareri too? 

Mr. HEBERT. That is who I was referring to, yes, Senator. 

Senator LEVIN. I am sorry, I interrupted you. You would have 

met? 

Mr. HEBERT. I would say that committee met periodically 

throughout the course of 2001. I activated that committee, the purpose of which was to communicate amongst senior management exactly what we understood to be going on with that account, with 

the relationship. It was a significant relationship. It was growing 

at a very rapid pace. I was concerned that the size of this account 

would become too large for the organization, and the purpose of 

this letter to the president was to specifically indicate that there 

were senior people in the organization who were paying attention 

and who were looking into the various aspects of this relationship. 

Senator LEVIN. So here we have a highly visible account inside 

the bank known to the highest levels of the bank, encouraged by 

the highest levels of the bank, the largest account I believe. 

Mr. HEBERT. Yes. 

Senator LEVIN. There were roughly 60 actual bank accounts associated with the E.G. government, its political leaders and their 

relatives. Yet Riggs missed a number of troubling signals about 

these accounts. 

14

1See Exhibit 1b which appears in the Appendix on page 213. 

2See Exhibit 1c and 1d which appear in the Appendix on pages 214 and 215. 

For example, Exhibit 1b 1 shows cash deposits into the offshore 

private investment account of the President of Equatorial Guinea. 

This account was named Otong. Between April 2000 and April 

2002, $11 million in cash was deposited into the account. On two 

occasions there were $3 million deposits in cash estimated to weigh 

60 pounds as it was delivered to you. Yet Riggs did not ask the required questions about the source of such large cash deposits until 

a year and a half later, late in 2003. 

Then you look at Exhibits 1c and 1d,2 and they show large 

amounts of funds that were transferred from the E.G. oil account 

to offshore corporations, whose identities, the bank has acknowledged to us, were unknown to the bank, the ownership of these corporations unknown. Transfers from Equatorial Guinea’s oil account 

at Riggs to Kalunga and to Apexside. Between July 2000 and 2001, 

$8 million was transferred from the oil account of this country to 

a company called Apexside, that is Exhibit 1d. Between June 2000 

and December 2003, $26 million was transferred from the oil account of the country to a company called Kalunga. Riggs has acknowledged to us that it made no inquiries about these transactions when they were made. It was required to do so under antimoney laundering regulations. 

Mr. Hebert, when Riggs finally questioned President Obiang and 

his ministers about the Kalunga and Apexside accounts in early 

2004, what happened? 

Mr. HEBERT. The president refused to give us—he indicated that 

these transactions were authorized by the government for payment 

of goods and services in connection with the development of the 

country. When we inquired about the specific vendors, they indicated they would not respond to our questions, and we advised 

them without that response, without the understanding of that information being shared with the bank, that we were going to ask 

them to close their account immediately. 

Senator LEVIN. Why did you not ask those questions when the 

transfers were made, instead of waiting until the end of 2004, after 

the subpoena and publicity? 

Mr. HEBERT. Well, our systems and our entire information technology process had been under development from shortly after I 

arrived at the bank. There was no question in my mind that the 

information technology system in the bank was hampering the ability to provide the compliance necessary for the client base that the 

bank had. Second, it was very difficult to run a modern bank, so 

we undertook an extensive project. We spent some $60 million, and 

20 months later enacted and converted to a new system over Labor 

Day of 2003. During that time we also had developed an entirely 

new platform of compliance policies and procedures, as well as 

brought—hired one of the big accounting firms to come in and help 

us conduct internal audit activities. 

It wasn’t long after I came to the bank that I realized—excuse 

me—in 2003, that we realized that our compliance in internal auditing areas were lacking in their ability to provide information for 

senior management to—and for the compliance area to monitor and 

15

manage the risk. And so we undertook a process of remediation 

and installed a completely new compliance department. We hired 

an outside firm from New York, a firm populated with national forensic specialists, and KPMG was the firm. It was from that firm 

that I was able to recruit and hire David Caruso to come in and 

head up our compliance and help us create. We were working also 

with the Office of the Comptroller of Currency to create and upgrade our compliance area. 

As a result of that activity, from March or April 2003, we then 

proceeded to enact an upgraded compliance program, and when we 

converted to our new system, we were able to start monitoring and 

detecting activity. With that, we generated this information dating 

back to the date that you have on these charts to 2000, and with 

that information we were able to put together the issues that you 

are discussing today and approach the client. 

Without the system and without the upgraded Compliance Department, we would have been unable to produce that information 

and provide the necessary oversight. And that is what we were 

working with the Office of the Comptroller of Currency on. 

Senator LEVIN. First of all, Mr. Hebert, you do not need a computer system to realize suspicious activity when you have 60 

pounds of cash being walked into the door. 

Mr. HEBERT. Mr. Chairman, I agree with you 100 percent. 

Senator LEVIN. What does that have to do with a sophisticated 

computer system? 

Mr. HEBERT. I only heard that information yesterday. I was not 

aware that they were bringing in 60 pounds of cash or anybody 

was bringing that much cash into the organization. 

Senator LEVIN. Does it take a computer to take a look at something, or to act upon something which is just clearly visible by eyeballing it, that your account statements like these——

Mr. HEBERT. It is my understanding that these——

Senator LEVIN [continuing]. Unidentified companies. 

Mr. HEBERT. It is my understanding that these were wire transfers of payments for vendor services from the oil account. 

Senator LEVIN. So that you are saying that when those transfers 

were made, that the bank asked and found out who owns Kalunga? 

Mr. HEBERT. No. I am saying after we installed our new systems——

Senator LEVIN. Right, but you could have done what my staff 

does, right? You have State Department reports of a government 

who is misusing its oil revenues, violating human rights. You 

would think that might trigger some kind of an interest in who 

your client is. And then you see deposits made to companies whose 

identity and whose ownership is unknown and you do not ask for 

it at the time. That does not take a computer to carry out KnowYour-Client requirements. What does a computer have to do with 

that? 

Now, August 2000, a million dollars is transferred to some company. Your own policy said find out who that company is, who 

owns it and what that money is for. But you did not follow your 

policy at that time, did you? 

Mr. HEBERT. No, we didn’t. Mr. Chairman, as I said earlier, 

Bank Secrecy compliance was a challenge in this bank when I first 

16

entered into the bank. The bank did not even have a compliance 

officer at the time I became President and CEO. They were in the 

process of recruiting one. We were able to hire a compliance officer 

in the Summer of 2001, who began to write new policies and procedures, and to start a training program. He reported to management, to the management committees, to the board committees, 

that he had concluded effective policies and procedures development in the bank, and he had transmitted that information across 

the bank, that he had trained people, and they were performing 

their activities. 

We made some mistakes. We did not effectively put in a BSA 

program at that time. We did not have effective compliance leadership. 

Upon learning that these policies and procedures were deficient, 

and upon learning that our internal auditing area was lacking in 

its ability to track these activities, we took action. I took action. 

Senator LEVIN. Mr. Hebert, one of the actions that you took following some additional State Department criticism of Equatorial 

Guinea, and articles that ran in 2002 and 2003 in the Los Angeles 

Times about human rights abuses in Equatorial Guinea, whether 

a diversion of oil funds was occurring by political leaders, you arranged a briefing, I believe, for senior management by a man 

named Bruce McColm; is that correct? 

Mr. HEBERT. Yes. 

Senator LEVIN. Now, Bruce McColm reported to you about 

human rights abuses and election activities in that country, and 

you arranged for him to give a briefing to the board about some 

very serious allegations. At the time did you know that Mr. 

McColm was a partner with the President of Equatorial Guinea? 

Mr. HEBERT. No, Senator. 

Senator LEVIN. It is quite amazing here what you do not know, 

or did not know, because you bring a man in to give a report, presumably an objective report, to a bank about what is now, again, 

very visible. You have OCC allegations about real problems with 

anti-money laundering. You have public reports by the State Department and by the media about the misuse of oil revenues, putting oil revenues that belong to a country into the personal account 

for the personal benefit of the president of that country. So you 

have all of this evidence in front of you. You bring in a man, who 

apparently was paid, not only a partner with the President of 

Equatorial Guinea, but was given about a half million dollars in 

fees and expenses to report, so-called, on the presidential elections. 

He comes and gives you this positive report about elections being 

fine and human rights abuses declining. And you are saying that 

you are not even aware of the fact that that man was a partner 

of the person whom he was reporting on? 

Mr. HEBERT. Yes. 

Senator LEVIN. Who set up that meeting? How did you happen 

to pick Mr. McColm? 

Mr. HEBERT. I didn’t choose Mr. McColm. 

Senator LEVIN. Who did? 

Mr. HEBERT. That would have been likely in the international 

area. I would have asked at one of our ad hoc committee meetings, 

would have discussed the fact that we needed to get outside or 

17

independent verification of what was going on in the country. We 

asked if we could get somebody to come in who could give us an 

authoritative report. And that activity would have been handled by 

the people in the international and embassy area to bring him in. 

Senator LEVIN. Now, there was a company that was asking Riggs 

for some support, and for some advice in building a telecommunications system in Equatorial Guinea; is that correct? 

Mr. HEBERT. I didn’t know that until we sat down with your 

staff. 

Senator LEVIN. And now you know about that—that Riggs was 

actually assisting a company that Mr. McColm was a partner with 

the President of Equatorial Guinea in? 

Mr. HEBERT. I didn’t know that at the time. 

Senator LEVIN. I will come back. Let me call Senator Lautenberg. 

OPENING STATEMENT OF SENATOR LAUTENBERG 

Senator LAUTENBERG. Mr. Chairman, I am going to leave it to 

you because I have something else I must do in some timely fashion. I would say that for me, I sit here in amazement to learn about 

a corporation like Riggs Bank, that is a dominant player in this 

community, and to see how casually they dismissed the rules, did 

not pay attention to them, and now are running fast to try to play 

catch up. Changes in the board of directors, as I hear from Mr. 

Hebert, and to promise to comply. It is a kind of love, cherish, and 

obey in a particularly different situation than we normally think of 

that expression. 

Mr. Lee, I would ask one question. You were an examiner at 

OCC? 

Mr. LEE. That is correct, Senator. 

Senator LAUTENBERG. You were in charge of the Riggs Bank review at the time that you were still an employee of the Comptroller 

of the Currency? 

Mr. LEE. I left the OCC in October 2002, and I was recused from 

supervision of the bank in August 2002, so, yes, sir. 

Senator LAUTENBERG. You went to work for Riggs when? 

Mr. LEE. In October 2002. 

Senator LAUTENBERG. October 2002. Was there a memorandum 

that precluded or excluded some of the memos that were developed 

in the investigation at that time about what was going on at Riggs? 

Mr. LEE. Could you clarify that, Senator? I don’t understand. 

Senator LAUTENBERG. In the course of the review of the investigation, there were memos that you got from staff as they went 

through their routine of examining what was going on there. Was 

there an instruction from you not to permit those memos to be 

handed out so that they could be seen by other members of the 

OCC? 

Mr. LEE. Senator, at no time did I tell anybody not to distribute 

the information to anyone in the OCC. 

Senator LAUTENBERG. What do you think the reason was, after 

leading an examination, that Riggs was anxious to have you come 

to their team? 

Mr. LEE. Senator, you’ll have to—the exact reason you’ll have to 

ask Mr. Hebert. My feeling at that point, my belief is I had skills 

in the credit area that would help me help the bank. 

18

Senator LAUTENBERG. Was your examination critical in any way 

of Riggs procedures? 

Mr. LEE. Yes, sir. 

Senator LAUTENBERG. Mr. Hebert, what was it about Mr. Lee 

that you found so attractive? 

Mr. HEBERT. Senator, we were in the process of trying to recruit—had been in the process of trying to recruit a loan review officer and insource our loan review process. Ashley Lee retired, or 

indicated he was retiring from government service in the OCC after 

34 years, and that he would no longer be working in the OCC. And 

I think that was in July 2002. And as we were sitting in our offices 

talking about staffing this loan review position in August 2002, it 

was suggested that Ashley Lee might be a candidate because he 

would no longer be working at the OCC. He was retiring from the 

OCC, and that because he had been the examiner in charge, he had 

a good working knowledge of the portfolio and the credit risks that 

were in the portfolio, and it would be more efficient for us to have 

someone who had the background. He could come in and hit the 

ground running right at the beginning, and start to install the policy and oversight procedures that we needed to have in the loan 

review area of the organization. 

Senator LAUTENBERG. Mr. Lee, when you looked at Riggs, were 

you displeased by their apparent lack of support for the rules as 

you knew them to be, and did you find that they were operating 

outside of what you would have expected or hoped that they would 

be doing? Did you see anything wrong in their processing? 

Mr. LEE. Senator, I think that at each exam that we conducted 

we had a different set of recommendations, and those were communicated to the bank in the form of the annual report of examination 

or interim memos. 

Senator LAUTENBERG. Do you recall what your conclusions were 

from that examination? 

Mr. LEE. That the systems needed improvement, but overall compliance was generally satisfactory. 

Senator LAUTENBERG. I thought I heard something differently in 

the questioning of the Chairman on the reviews that appeared in 

the press and in general information. Mr. Hebert, you seem to be 

fairly contrite, apologetic for the way the bank was operating, and 

admitted lots of mistakes. 

Now, Mr. Lee, you did not see things the same way then that Mr. 

Hebert saw them? 

Mr. LEE. Senator, I fully support Mr. Hebert’s comments. I think 

what we saw was a definite need for improvement of certain monitoring systems, and those recommendations, Senator, were detailed 

in a report, and management was taking corrective action on addressing each and every one of them while I was at the bank. 

Senator LAUTENBERG. So you were going to go help them 

straighten things out. Was there anything that took place in discussions that you had with Riggs Bank that enabled you to feel 

good about having an association with this bank after they had so 

challenged the laws of the country? I mean we are talking about 

this charge of money laundering and the incredible ignorance of 

what was taking place, the pounds of cash that came in, things of 

19

1See Exhibit 7b which appears in the Appendix on page 260. 

that nature, that would be so apparent? I would have thought, Mr. 

Hebert, that one could not escape the misbehavior of the bank. 

And the Pinochet review, you had examiners on that job. I am 

told that they did not include their examination memoranda or 

supporting work papers in the electronic files. Do you know that 

to be the case? 

Mr. LEE. Senator, I’m glad you brought that up. When I was 

recused from supervising Riggs by the OCC, the Pinochet investigation was still under way. So what happened afterwards—the normal procedure is to enter work papers at the conclusion of the 

exam and to issue a report of exam after that investigation, or any 

exam is concluded. 

Since I was out of the bank—I had already been recused and had 

left the bank as EIC—I have no knowledge as why that did not 

happen, sir. 

Senator LAUTENBERG. No instructions from you to the examiners 

not to include this important information source to the OCC? 

Mr. LEE. Senator, I made no instructions to anybody not to include anything into the OCC records. In fact, Exhibit 7b,1 states 

where I had indicated: Please E-mail with exact location where the 

documents, information relative to Pinochet may be found within 

the analysis. That analysis is part of EV. 

And also, Senator, my point is that normal procedures are expected to be in the EV, and it’s expected to be communicated to the 

bank. Unfortunately, I was not available to see that process 

through. I was recused from the supervision of the bank and cannot speak to that. 

Senator LAUTENBERG. Did those working for you, the examiners, 

recommend that these memos be included? Are you saying that you 

did not know why these memos might not have been included in 

the final report on the examination? 

Mr. LEE. I do not know, sir. 

Senator LAUTENBERG. Mr. Chairman, it sounds like there is 

much here to be done. It points out one thing in terms of our responsibilities, that we have to be more diligent. If an organization 

with the size and the scope that Riggs Bank had can so blatantly 

ignore the rules that are put out there by the U.S. Government for 

how one operates with foreign funds or funds that create suspicion, 

then I think that, Mr. Chairman, we have to reexamine the structure of the law and see where it is that we have missed making 

the requirements more clear and more telling. 

One of the things that we see even today in our operations in 

this country—and I tried to correct it in an amendment I offered 

that would say that corporations that have more than 50 percent 

equity in a foreign subsidiary percent should be sanctioned if they 

do business with any of the countries that we are identifying—

North Korea, Iran, etc. as terrorist states. And we lost that on the 

floor of the Senate. But it seems to me, Mr. Chairman, that we just 

have to continue to fight to tighten up these rules because they are 

so often dismissed or ignored. 

Thank you, Mr. Chairman, for doing this. And I thank the witnesses. 

20

1See Exhibit 48a which appears in the Appendix on page 487. 

2See Exhibit 7b which appears in the Appendix on page 260. 

Senator LEVIN. Thank you very much, Senator Lautenberg. 

Mr. Lee, on the questions that Senator Lautenberg asked you, 

there is a real conflict here with some folks at the OCC, who have 

now given us affidavits, and I want to read to you from those affidavits. This has to do with who gave the order that the Pinochet 

documents not be part of the database at the OCC, and when the 

Pinochet review was completed. On both of those issues we now 

have a conflict of sworn testimony, yours here today, and what is 

in this affidavit. 

The first affidavit which we just received is from Joseph O. 

Boss.1 Do you know who Mr. Boss is? 

Mr. LEE. Yes, Senator. 

Senator LEVIN. And who would he be? 

Mr. LEE. He is the expert BSA examiner that was looking into—

that was assigned to Riggs that was doing the BSA exam, and also 

heading up the Pinochet review that was underway when I was 

recused from the bank. 

Senator LEVIN. If you look at Paragraph 6 in the Boss affidavit. 

‘‘Sometime around mid July 2002, Ms. Trojan, Mr. Lee, and I informally discussed the filing of documents related to this targeted review.’’ The targeted review that they are referring to earlier in the 

affidavit is the Pinochet review. ‘‘Mr. Lee indicated that he wanted 

no conclusion memo, no work papers, and no other documents in 

EV,’’ which is the electronic system, ‘‘regarding the targeted review.’’ Is that true? 

Mr. LEE. I would like to discuss this with my adviser, Senator. 

Senator LEVIN. Sure. Could you identify who your adviser is, by 

the way? 

Mr. LEE. Gilbert Schwartz, Senator. 

Senator LEVIN. Is he a lawyer? 

Mr. LEE. Yes, sir. 

[Pause.] 

Senator, all I have is Exhibit 7b 2 that discusses the E-mail traffic and where I asked the individuals to put it. Also, in mid July 

2002, I was not even in the country, sir. I was in London, and to 

have an informal discussion would be almost impossible to do that, 

sir. At that point in time the only discussion that was going on is 

Mr. Boss was more comfortably keeping the work papers while the 

review was underway in the field office, or the Office of the Comptroller of the Currency, and I concurred to that. But it’s—Senator, 

it’s standard practice that when the exam—by the time the exam 

is completed, that the documents are entered into EV and that the 

report, a copy of the report that’s issued to the bank should be entered in there also, sir. 

Senator LEVIN. Now let me ask my question again. Mr. Boss, in 

a sworn affidavit which we have just received, states that ‘‘Mr. Lee 

indicated that he wanted no conclusion memo, no work papers, and 

no other documents in EV regarding the targeted review.’’ Is that 

true? 

21

1See Exhibit 48b which appears in the Appendix on page 490. 

Mr. LEE. I never made any statements to Mr. Boss about not 

putting documents in—to hold anything out of EV when the exam 

was completed or any time. 

Senator LEVIN. Therefore you deny that you said that? 

Mr. LEE. Yes, I do, Senator. 

Senator LEVIN. There is another affidavit which we have just received from Lois A. Trojan.1 Do you know her? 

Mr. LEE. Yes, sir, I do. 

Senator LEVIN. Who is she? 

Mr. LEE. She is an examiner that works for the OCC. 

Senator LEVIN. In Paragraph 5 of that sworn document, this is 

what Ms. Trojan says. ‘‘On or about the beginning of July 2002, 

Messrs. Boss and Lee and I discussed the filing of the work paper 

documents related to this targeted review. This informal discussion 

was conducted while we were standing near the cubicles that Mr. 

Boss and I worked at, and outside of the office of Mr. Lee. During 

the discussion Mr. Lee instructed Mr. Boss and me to retain the 

work papers in hard copy form, but not to enter the conclusion 

memo or other work papers in EV.’’ Is that statement true? 

Mr. LEE. Sir, what the discussion was about was Mr. Boss was 

uncomfortable, or more comfortable holding the work papers at an 

offsite location, and I concurred with that while the review was underway. 

Senator LEVIN. Is it true or not that you instructed Mr. Boss ‘‘to 

retain the work papers in hard copy form, but not to enter the conclusion memo or other work papers in EV,’’ is that true? 

Mr. LEE. Senator, I never told Mr. Boss not to enter the conclusion memo or anything into EV. It’s normal practice of the OCC 

that when the exam is completed, that all that information is then 

put into EV to document the findings. I was recused from the bank 

during that time and did not see the examination through, so unfortunately was not there to ensure that it got in the EV. 

Senator LEVIN. Obviously, we have a very direct conflict on a 

very critical point here. It is clear in the record what that conflict 

is. 

Now on the second point at issue, and that is when the Pinochet 

review was completed. If you will look again first at the Boss sworn 

statement, Paragraph 4. ‘‘Ms. Trojan drafted a conclusion memo 

during the course of the targeted review. I reviewed the first draft 

of the memo, made a few comments and approved the memo in 

July 2002. By the time I approved the conclusion memo, I believe 

that we had completed our information gathering and analysis, and 

therefore the targeted review. I believe our work on the targeted 

review was completed around mid July 2002.’’

Was it completed by mid July 2002? 

Mr. LEE. Not to my knowledge. I know there was—as he says, 

there was one outstanding issue, Senator, and to the best of my 

knowledge that was still under review, and when I was recused 

from the bank shortly thereafter, that was still incomplete. 

Senator LEVIN. But the one outstanding issue having to do with 

whether a certain document would be filed with the OCC was not 

part of that review, was it? 

22

1See Exhibit 7b which appears in the Appendix on page 260. 

2See Exhibit 7c which appears in the Appendix on page 261. 

Mr. LEE. I don’t know, Senator. 

Senator LEVIN. Now let us take a look at the other affidavit of 

Ms. Trojan. And here, take a look, if you would, at Paragraph 4. 

‘‘I drafted, and Mr. Boss reviewed, a conclusion memo during the 

course of the targeted review.’’

Now, again, we are talking about a target review of Pinochet so 

everyone knows what we are talking about, right? 

Mr. LEE. I presume so, sir, from this. 

Senator LEVIN. ‘‘I completed the final version of the conclusion 

memo on or about July 16, 2002, and provided it to Mr. Boss, along 

with a summary background narration. I also put hard copies of 

both documents with the Pinochet workpapers. I believe that we 

completed our information gathering and analysis, and therefore, 

the targeted review, by July 16, 2002.’’

Do you deny that that review was completed by July 16, 2002? 

Mr. LEE. Senator, I have no knowledge if that’s the case. I was 

out of the country, and no information was ever given to me that 

it was complete. Mr. Boss did not give me a final report or his recommendations to submit. My understanding, when I was recused 

from the bank, was that the review was still underway, Mr. Boss 

was still working on finalizing all those work papers, and I informed the EIC during our transition meeting that that was still 

under way. 

Senator LEVIN. If you will, look at Exhibit 7b,1 which you have 

referred to before. Let me first turn you to Exhibit 7c.2 Those documents were never put into the database. We have sworn affidavits 

saying the reason they were not is because you directed that they 

not be put into the database for that targeted review that was completed in July 2002. But there had been an earlier exam of 

Pinochet that was finished in April 2002, excuse me, that was not 

related to Pinochet, that was related to the bank. I ought to just 

restate that so there is no ambiguity about that. There had been 

an April 2002 targeted review. Is it target or targeted? 

Mr. LEE. Targeted. 

Senator LEVIN. Targeted review. 

Mr. LEE. Senator, either one works. 

Senator LEVIN. There was an April 2002 targeted review of this 

bank by the OCC which had nothing to do with Pinochet, right? 

Mr. LEE. Senator, that is correct. 

Senator LEVIN. Instead of putting these documents in the 

Pinochet review in the OCC database, according to two witnesses 

with sworn affidavits, you directed that there be a notation that 

the hard copies existed at the OCC, but that the notation not appear in July or whenever that Pinochet targeted review was completed, but that there be a notation placed in an earlier review unrelated to Pinochet. Why was it put, that notation, in the April 

2002 targeted review of the bank? Why did you go back to a completed review to put a notation in about what you said was an 

uncompleted review? 

23

1See Exhibit 7b which appears in the Appendix on page 260. 

Mr. LEE. Senator, I don’t remember that occurrence. I think the 

April 2002 had to do with the anti-terrorist financing. Is that the 

one in question? 

Senator LEVIN. I do not know what it was, but it had nothing to 

do with Pinochet. It was a targeted review relative to the bank, but 

nothing to do with Pinochet. Why did you direct that—I am told 

by my staff that you are correct. But in any event, it had nothing 

to do with Pinochet. 

Why did you—there are people behind you shaking their heads 

no, but that is not the point. The point is it had nothing to do with 

Pinochet. It had to do with the bank. And you directed, in July 

2002, that a note about a Pinochet-directed exam be placed into a 

previously completed directed review of the bank. Why would you 

do that, where it would not be found, it would not be found there, 

an April 2002 review, having nothing to do with Pinochet? 

And now we have two people under oath saying you said do not 

put anything in the database about this directed review of the 

Pinochet accounts? In July 2002 you denied that you gave that direction. You deny it was completed when you left, as a matter of 

fact, but that is not my point. That was my point earlier. My point 

now is a different one. Why did you direct that a notation about 

a directed review of Pinochet be placed in an earlier targeted review of that bank which had already been completed? Why did you 

do that? 

Mr. LEE. Senator, I don’t remember that, but the——

Senator LEVIN. Let us stop you right there. You say you do not 

remember that. Let us just go back to the exhibit you referred to, 

go back to 7B.1 From Boss to you, July 15, Monday. ‘‘Ashley, a 

quick question. Where in EV did you want to put the reference 

about Pinochet?’’ Signed Joe. 

Your answer, from Ashley Lee to Joe Boss: ‘‘In the April 2002 

target.’’ Signed Ashley. Did you sign that? 

Mr. LEE. This is an E-mail from me, sir. 

Senator LEVIN. So now, why did you do that? A moment ago you 

said you do not remember. Now here is the E-mail. Why did you 

tell Joe to put that note about Pinochet into a completed review 

months earlier that had nothing to do with Pinochet, why? 

Mr. LEE. Senator, the issues where the Pinochet accounts were 

brought up during the April review, and from that a subsequent review was determined to be needed, and that was the follow-up review that specifically targeted the Pinochet issues, so they were not 

fully developed within the Pinochet files in April——

Senator LEVIN. So you do remember them now? 

Mr. LEE. Well, this chain of events, I don’t remember saying to 

put it in the EV, but there is no——

Senator LEVIN. You did not. 

Mr. LEE. I just said make sure—the issue here is just have, 

‘‘Please E-mail the exact location of where the documents’’——

Senator LEVIN. I understand that, and that is unclear, I think, 

a very confusing and inexact thing, but I will get to that in a moment. But that is not the point. The point is that you were the one 

that directed them to put a notation, a reference about Pinochet 

24

into the April completed examination. And first you said you did 

not remember. Now you say what? 

Mr. LEE. Senator, I don’t remember instructing anyone on this, 

but I do remember that exam of Pinochet was still under review. 

My instructions was that we would not make any conclusions on 

the Pinochet events in the April target memo that was going to the 

bank. And specifically in the memo that went to the bank it says 

it excludes all reference to Pinochet, which is still under review. 

But even that—there again, I think the exit meeting for that 

April exam was not concluded until July 30, 2002. The final document was not issued until October 2002, the letter, and unfortunately, again, I was out of the bank, and a lot of the chain of 

events that happened between the issuance of the letter and my—

because I was recused from the bank on August 8 and had no way 

of seeing—did not follow through, or was unable to follow through 

on the issuance of that letter that went out to the bank, or even 

to review the EV documents to make sure that they were complete, 

sir. 

Senator LEVIN. Are you aware of the fact that there was no reference, that the documents in question were never part of the database at the OCC? 

Mr. LEE. I had been recused from the——

Senator LEVIN. Are you aware of it? 

Mr. LEE. No, I’m not, sir. 

Senator LEVIN. Are you aware of the fact that nothing was provided to the bank? 

Mr. LEE. I only found that out yesterday when I read the Senate’s report. 

Senator LEVIN. It is the result of what you participated in. That 

is what happened—a bank you then left to go to work for was 

never given that report, a highly critical report. And the evidence, 

the documents show that it was because you directed, according to 

two sworn affidavits, that you directed that those documents not be 

put into the database in a way where they would be sent to the 

bank, and that, as a matter of fact, the notation relating to the 

Pinochet directed review not appear relative to the July targeted 

review of Pinochet, but appear in a review of the bank that had 

nothing to do with Pinochet. That is the clear appearance of your 

E-mails, of these sworn documents, and the conflict of that is going 

to have to be worked out by someone else. But there is a sworn 

conflict here that I will be asking our Chairman to send to the Justice Department because it is very—there is such a clear contradiction here between you and this other testimony and as to what 

your role was. 

My last question of you is, before I go back to Pinochet, did you 

not think twice about going to work for the bank when you had reviewed accounts at that bank, information about those accounts? 

You were right in the midst of a review of Pinochet accounts at 

that bank. Do you think it is appropriate for somebody to leave a 

government regulatory agency that is supposed to be overseeing a 

bank, supposed to be requiring a bank to live up to anti-money 

laundering laws, which they had not lived up to, according to one 

report after another of the OCC, and then immediately go to work 

25

1See Exhibit 7d which appears in the Appendix on page 262. 

for that bank? And then, by the way, attend meetings with the 

OCC, which you did, did you not? 

Mr. LEE. Senator, the issues that were brought up were being—

in my mind, the OCC’s position was that they were receiving 100 

percent attention by management in correcting those issues. The 

Pinochet investigation was in progress. It was still going on. And 

my movement over to Riggs was not—I had no role involved in 

BSA AML. It was in credit. That is really my expertise level, and 

it’s in an area that I felt very comfortable with and I feel very comfortable with the bank’s involvement in. 

Senator LEVIN. Whose idea was it that you go to work for the 

bank? Who initiated that conversation? Was it you or the bank? 

Mr. LEE. The bank did. 

Senator LEVIN. So they initiated the offer and the prospect of you 

going to work for them while you were working at the OCC? 

Mr. LEE. Yes, they did, Senator. 

Senator LEVIN. I want you also now to complete the record relative to this issue. Take a look at Exhibit 7d.1 This is a document 

as to when that notation that was put in the earlier directed review was put in there relative to Pinochet. Again, it was not put 

in relative to the Pinochet directed review; it was put into the earlier one, April 2002. But when was that put in, this little note that 

appears in the wrong review. According to Lois Trojan’s recent Email: ‘‘Below is the comment from Don Ewing regarding when my 

comment’’—that would be Lois Trojan’s comment—‘‘was put into 

EV’’—that is the database—‘‘regarding Pinochet?’’

Apparently the date that he sees is July 17, 2002. That is what 

the folks at OCC say when that note was put into the database for 

the wrong review—which is while you were still there; is that correct? You were still there on July 17, were you not? 

Mr. LEE. I was still with the OCC involved in Riggs. I was not 

involved in this exam that was going on by Mr. Boss at that point 

in time, sir. 

Senator LEVIN. On the meetings that you attended after you left 

the OCC and became a risk officer for Riggs, did they deal with 

Riggs’s efforts to improve its anti-money laundering systems and to 

address problems identified in the exams that you had supervised 

as the OCC examiner in charge? 

Mr. LEE. Mr. Chairman, during all the—I did attend meetings 

with the board and also other members of management at which 

the OCC was present. In all cases I fully complied with all the 

guidelines for the regulations at all times. There is nothing 

wrong——

Senator LEVIN. That is your conclusion. 

Mr. LEE. There is nothing——

Senator LEVIN. My question is different though. Did you attend 

meetings after you went to work for Riggs, that dealt with Riggs’s 

efforts to improve its anti-money laundering systems, and did you 

address during those meetings with the OCC, problems that were 

identified in examinations that you supervised as the OCC examiner in charge of Riggs? That is my question. 

26

1See Exhibit 28 which appears in the Appendix on page 373. 

Mr. LEE. I attended meetings. I never addressed issues that I 

had brought up as EIC. I did address issues about what we were 

doing. New matters were definitely addressed as to what bank actions to take in order to reduce risk. My role was that I had no 

BSA AML responsibility. That does not report to me, so I have no 

authority or even to make commitments on the side of the bank for 

AML compliance. 

Senator LEVIN. Exhibit 28 is a copy of the OCC’s rules for retiring or resigning employees.1 If you will take a look at Exhibit 28, 

page 3, it says: ‘‘For 2 years after leaving the government a former 

employee is prohibited from communicating with or appearing before any executive or judicial branch employee on behalf of any 

other person or particular matter involving specific parties the employee knows or reasonably should know was pending under his or 

her official responsibility during the last year of his or her Federal 

employment.’’

Do you believe you were bound by that policy after you left? 

Mr. LEE. I was bound by all the policies of the OCC, sir. 

Senator LEVIN. And you feel that that bound you even after you 

left the OCC? 

Mr. LEE. Yes, sir. Yes, I do. 

Senator LEVIN. Mr. Chairman, I do have just a couple more questions of Mr. Hebert and Mr. Lund. 

Senator COLEMAN [presiding]. Please continue, Senator Levin. 

Senator LEVIN. Just a few questions on General Pinochet. It is 

a pretty sordid tale. A series of non-actions on the part of the bank 

and actions on the part of the bank which do not comply with your 

own self-stated policy and with what the regulations were relative 

to Know-Your-Client at the time. 

This is what the summary is. You solicited General Pinochet’s 

business. Senior officers of the board were aware that he was a client. The bank established two offshore shell corporations in a secrecy jurisdiction for Pinochet where his name could not be traced 

to the entities, those entities being Ashburton and Althorp corporations. Due diligence on General Pinochet’s accounts was virtually 

nonexistent. When you look at the Know-Your-Customer forms for 

the offshore entities, you just find almost no identifying information whatsoever of any value. 

There were no documents that showed Pinochet’s source of 

wealth when he opened his personal account in your bank in 1994. 

When Pinochet opened an account for one of his offshore corporations, that I referred to, in 1996, the Know-Your-Customer form 

was not even filled in for 2 years. The original source of wealth was 

described as ‘‘family wealth, high-paying position in public sector 

for many years.’’ The source used to verify the source of funds was 

listed as ‘‘position and wealth are a matter of public knowledge,’’ 

and boy, they sure were. 

By 1998, there was a Riggs account opened for a second offshore 

entity called Althorp. The Know-Your-Customer form was not filled 

in until May 1999. That is a year later, after the account was 

opened. Original source of wealth is just simply listed ‘‘family and 

salary.’’ No checking out of the source. 

27

1See Exhibit 37 which appears in the Appendix on page 422. 

You were still trying to obtain documentation of Pinochet source 

of wealth when the OCC was conducting its exam in 2002, and all 

that was written there was by the head of Riggs’ international private bank component, writing a memo which said the process of 

collecting definitive documentation of the source of funds ‘‘continues.’’ When Riggs tried to move the offshore corporations to another jurisdiction for Pinochet, on behalf of Pinochet, when you 

tried to move his offshore corporations to another jurisdiction, you 

were unable to do so because you could not answer the jurisdiction’s questions about the source of funds. 

You omit the fact, in your Know-Your-Customer forms, that there 

was ongoing international litigation against Pinochet including efforts to freeze his funds. The identity of Mr. Pinochet is excluded 

from both the Ashburton and Althorp Know-Your-Client forms, and 

the fact that he was associated with two offshore corporate accounts was kept in a vault. 

Now this one quick question. Mr. Lund, you were head of the 

international banking group. How could you have allowed all those 

Know-Your-Customer requirements to be so thoroughly ignored? 

Mr. LUND. Senator, I believe that the individuals that were directly involved with the relationship received the proper training 

from the bank. They knew the requirements, and I believe that I 

was entitled to rely on internal and external audits to reveal deficiencies in documentation. 

Senator LEVIN. Riggs changed the name of Pinochet’s personal 

account from Augusto Pinochet Ugarte—this is in December 2000—

to A. Ugarte. Why did you do that? 

Mr. LUND. Senator, I don’t recall that I was aware that that happened. 

Senator LEVIN. When did you become aware of that? 

Mr. LUND. I believe I became aware of it when I was interviewed 

by the staffers here. 

Senator LEVIN. Here? 

Mr. LUND. Yes, sir. 

Senator LEVIN. Is that proper? Was it proper to do that? 

Mr. LUND. To change the name, Senator? 

Senator LEVIN. Yes. To hide the identity? 

Mr. LUND. No, sir. 

Senator LEVIN. Thank you. Thank you, Mr. Chairman. 

Senator COLEMAN. Thank you, Senator Levin. 

Let me follow up a little bit on the Pinochet discussion. By the 

way, Mr. Lund, what period of time, how long have you been employed with Riggs? 

Mr. LUND. Chairman, I joined Riggs in 1988 and left Riggs in 

March 2004. 

Senator COLEMAN. Exhibit 37 1 is the Riggs Know-Your-Customer 

policy and procedures, I know Senator Levin has made reference to. 

You have a copy. Introduction reads: It is the policy of Riggs National Corporation, its subsidiaries including Riggs Bank N.A., to 

conduct business only with individuals, companies, trusts, beneficial owners and grantors, powers and holders of such trusts that 

we know to be of good reputation, and who to the best of our 

28

knowledge, through proper and due diligence have accumulated 

their wealth through legitimate and honorable means. 

The date of that policy is June 2000 revision date, and then approved January 2001. Was that a new direction or was that standard practice and standard policy, what is set forth in that KnowYour-Customer compliance manual? 

Mr. LUND. Senator—Mr. Chairman, I don’t believe it was dramatically different from previous policies. 

Senator COLEMAN. The incident about Riggs changing the name 

of the Pinochet account in December 2000 is after this, but again, 

this is not new policy. This is, in the industry, in the business this 

should be standard practice. 

Mr. LUND. Yes, Chairman. 

Senator COLEMAN. Did you personally open the Pinochet account? 

Mr. LUND. Yes, Chairman, I did. 

Senator COLEMAN. And you maintain that you were not aware 

that the name of the account was changed? 

Mr. LUND. No, sir, I do not believe so. 

Senator COLEMAN. Are you aware of any relationship between 

Pinochet and the former chairman, Chairman Allbritton? 

Mr. LUND. Yes, Chairman. I believe they had a professional business relationship. 

Senator COLEMAN. Chairman Allbritton was what, chairman of 

the board at Riggs? 

Mr. LUND. Yes, sir. 

Senator COLEMAN. Do you know what period that was? 

Mr. LUND. I’m sorry? What period of time? 

Senator COLEMAN. Do you know what period when he was chairman, or Mr. Hebert, do you know? 

Mr. HEBERT. Mr. Chairman, Joe Allbritton was chairman of the 

bank until February 2001. 

Senator COLEMAN. Does he still have a relationship with the 

bank? 

Mr. HEBERT. He stepped down as the chairman of the board and 

the CEO and president of the bank, chairman and CEO of the bank 

on that date. 

Senator COLEMAN. Does he still have a relationship with the 

board? 

Mr. HEBERT. Not as of now. He remained on the board until this 

May. 

Senator COLEMAN. And it is correct that the chairman had a relationship with Pinochet? 

Mr. HEBERT. I don’t know that. 

Senator COLEMAN. Do you know if he visited Chile on any occasions to meet with Pinochet? 

Mr. HEBERT. I know he went to Chile to call on clients. 

Senator COLEMAN. Do you know if—I think the OCC in 2000 

asked for all politically exposed persons’ accounts in a 2000 exam; 

is that correct? 

Mr. HEBERT. I believe that’s correct, Chairman. 

Senator COLEMAN. Is it correct that the Pinochet account was not 

revealed to the OCC at that time? 

29

1See Exhibit 8 which appears in the Appendix on page 263. 

Mr. LUND. Mr. Chairman, that’s my understanding. I don’t know 

who provided the list to the OCC. 

Senator COLEMAN. Did the bank ever, Mr. Lund, ascertain a legitimate source of wealth for the Pinochet account? 

Mr. LUND. Mr. Chairman, I believe that the senior vice president 

and the regional manager for Latin America, Carol Thompson, on 

a number of occasions she had informed me that she had spoken 

to General Pinochet about his source of wealth, and that she had 

brought back documentation from Chile to prove his source of 

wealth. 

Senator COLEMAN. If you take a look at Exhibit 8,1 it purports 

to be a document from Paul D. Glenn, the Vice President, Director 

of Compliance, Compliance Department, to Stanley M. Dore, III, 

Senior Vice President, Risk Manager. In that document, under No. 

2, the customer stated intended use of the proceeds for the aforementioned withdrawals were described to the bank, but the bank 

has no way to confirm the actual use of the funds. No. 3, the bank 

is unable to document the source of each and every deposit. Does 

that document reflect a difficulty or inability to confirming sources 

of deposit, where the wealth came from? 

Mr. LUND. Yes, Mr. Chairman. 

Senator COLEMAN. Just a practical question. If you are just kind 

of an average person out there, you know who Pinochet is. You 

have extraordinary wealth. Did a light not go on at some point in 

time saying I am concerned about this? 

Mr. LUND. Mr. Chairman, I did actually on two occasions seek 

outside advice from the law firm of Fulbright & Jaworski, to better 

understand the risk associated with the bank. I was unable to 

draw a conclusion as to what the facts were related to his wealth, 

but made sure that my immediate supervisor, Mr. Roane, was 

aware of the relationship and the risks involved. 

Senator COLEMAN. Mr. Hebert, in reference to the Equatorial 

Guinea account, is it correct that that was the largest account at 

the bank? 

Mr. HEBERT. Yes, Mr. Chairman. 

Senator COLEMAN. About $750 million including deposit investment accounts? 

Mr. HEBERT. Yes, Mr. Chairman. 

Senator COLEMAN. Did the size of the account affect your objectivity in handling and monitoring it? 

Mr. HEBERT. No, Mr. Chairman. I was concerned about the size 

of the account because at some point that account was going to 

grow beyond the bank’s ability to maintain it. 

Senator COLEMAN. Again, I hope you understand the difficulty 

we have sitting here in looking at this account, and looking at the 

problems associated with it, and it does not take a Ph.D. or a degree in finance or accounting for some red lights to go on and for 

somebody to think, hey, you know something? There is something 

amiss here. I think we have an obligation to affirmatively do something about it. It appears from everything that we have seen, that 

doing something about it was really slow in coming. Would you disagree with that assessment? 

30

Mr. HEBERT. Mr. Chairman, we were concerned about the size of 

that account. We were concerned about the account. I inaugurated 

this ad hoc committee in early 2001 to track the process and the 

progress of that account. We, upon learning about the article that 

Senator Levin referred to, got very concerned about the situation 

in Equatorial Guinea. I did request that we get some additional information from outside the bank regarding the process. Have also 

followed up with discussions that were indirectly provided by the 

State Department regarding the election procedures down there, 

and we also worked with two outside firms to review all of the account activity in the oil accounts to satisfy ourselves that the payments were being made for authorized vendor and authorized government use. 

That was also during a critical time of the development of the 

technology and the construction of what we—our objective was to 

establish a first-class compliance area, and populating that area 

with the experienced forensic specialists and investigators which 

were going to help us satisfy the questions that we had, to determine if there was anything amiss in that account. That activity, actually, that investigational review internally in Riggs Bank started 

in August 2003, and with the conversion of our technology platform 

in September, we were able to make tremendous strides to reach 

back and track the flow of funds, and with the help of the Patriot 

Act on top of the conversion and on top of the establishment of 

what we feel is a first class compliance area, we were able to reach 

not only back into time, but reach across the banking system in 

America, anyway, and track the flow of funds, which enabled us to 

actually sight and capture this perpetrated fraud. 

Had it not been for the Patriot Act, we would not have been able 

to reach across the organizations, the banking organizations, and 

extract that information which enabled us to catch perpetrator 

fraud, which enabled us to mitigate any loss to the bank, and at 

the time loss to the customer. We were very concerned about this 

account. 

Senator COLEMAN. Mr. Hebert, let me say I want to give you 

credit, I want to give Riggs credit that you did put, as I understand, $12 million into a technology upgrade; you hired consultants; you hired compliance experts. The concern I have is it was 

really late in coming. The Patriot Act is 2001. You indicated that 

some of these measures took place in August 2003. In March 2004, 

you and management appointed Tim Coughlin as head of embassy 

banking. Coughlin tells our staff that he was absolutely shocked by 

what he found. He indicated to staff that over 85 percent of embassy banking accounts had deficient Know-Your-Customer information, lacked proper verifications, signature cards, and source of 

wealth verification. 

Given the high number of deficient accounts, it seems like the 

problem was never addressed. 

Mr. HEBERT. Well, the problem was supposed to be addressed. I 

have to tell you that I was shocked. Many people in our organization were shocked and disappointed. We had conducted and inaugurated a policy in October 2003 to begin fully remediating all files 

in accordance with the new requirements that had been laid out by 

the Patriot Act. We brought in outside advisers to help us formuVerDate 0ct 09 2002 08:29 Oct 15, 2004 Jkt 095501 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 C:\DOCS\95501.TXT SAFFAIRS PsN: PHOGAN
31

late those policies and procedures. We enacted those policies and 

procedures. We conducted training programs with the front line 

across the platform to educate them, and we also, I might add, 

from May 2003—April-May 2003, we visited every single official relationship in the embassy business, 160 relationships in Washington. We brought a team of people that handled the accounts, 

compliance, attorneys, and we sat down with them and we went 

through with each client the requirements that were put forth for 

us to maintain in connection with the Patriot Act, the fact that we 

were going to be raising and elevating our overall compliance. 

Previously, prior to the Patriot Act, we had to monitor and, as 

I said before, we were scrambling to put these systems in place, 

build the technology platform to maintain the systems. The advent 

of the Patriot Act, we had to not only monitor, we had to detect. 

And that created a new level, a new requirement for skill sets in 

the bank. We needed people who were experienced investigators, 

experienced and qualified with anti-money laundering investigations and the schemes that have been developed. We had to recruit 

those people. It took us time to find those people and bring them 

in and set them afoot. 

All of that was going on to the point of the final remediation, we 

had that devastating news in March that the final remediation 

process in the embassy area was not where we expected it to be. 

We had a 9-month——

Senator COLEMAN. March of what year? 

Mr. HEBERT. Two thousand and four. 

Senator COLEMAN. Two thousand and four. This is when the 

OCC issued the other consent order with the $25 million fine. 

Mr. HEBERT. They did issue that, but before that happened is 

when we learned about the remediation, before the actual issuance. 

And we, in the course of that process, determined that we had to 

completely start over. Notwithstanding all the training and all the 

process that we installed, the front line had not actually implemented the process. So we started about the business. We brought 

in approximately a dozen people initially, and then we brought in 

an additional 50 people who were experienced to help us remediate 

each and all of those files. 

We also at that time determined, for a variety of reasons, that 

we wanted to exit the high-risk accounts. We were not able to manage that risk. And as a result, we had already taken the decision 

on Equatorial Guinea. We had already taken the decision on Saudi 

Arabia. And we indicated—we visited with the OCC, we visited 

with our board. We made a presentation that called for the exit of 

110 official accounts that we deemed as high risk according to a 

matrix that had been designed by our professional forensic investigators and our compliance group. And factoring in many other 

components used for OFAC, FinCEN, FATA, Freedom House, and 

Customs and other elements to produce a ratio that would allow 

us to weigh in on the risk. 

Every time there was a newspaper article or every time there 

was an event in the world, because we had a relationship with that 

account, with that embassy, that created a risk that we did not feel 

comfortable with managing. We could not control the geopolitical 

32

1See Exhibit 39 which appears in the Appendix on page 454. 

structure, so we determined we would exit those accounts. And we 

have been under that process since. 

Senator COLEMAN. Senator Fitzgerald has been waiting patiently. Just a last comment, and then I will turn to Senator Fitzgerald. And I appreciate your forbearance here. 

Mr. HEBERT. I apologize. 

Senator COLEMAN. My concern, Mr. Hebert, is that it appears to 

this Senator that Riggs did not take this stuff seriously until the 

OCC said that they were going to get serious. In March 2003, I believe they indicated that they were considering another consent 

order. In July 2003, it is noted—and I think this is Exhibit 39,1

Minutes of the Joint Regular Board Meeting. I am just going to 

read this: ‘‘Mr. Hebert read part of a letter from OCC that was just 

now delivered that formally informed the bank that OCC will not 

deem the bank to be ‘in troubled condition’ by virtue of the board’s 

execution of the consent order.’’ He said, ‘‘This will relieve the bank 

from providing the OCC prior notice of proposed changes to the Directorate of Senior Management. Mr. Hebert emphasized that the 

issues with OCC are compliance issues, not safety and soundness 

issues. Following further discussion, the board accepted and signed 

the OCC consent order.’’

I get a sense that, again, it is being underplayed at this stage, and that in May 2004, you get hit with a consent order and a $25 

million fine. Now, that is serious. 

Mr. HEBERT. It is serious. 

Senator COLEMAN. And so that is the perception that we look at 

here, that this thing went on a long time, and, again, actions have 

been taken, and I do credit you for those. But it seemed like for 

an unjustifiably long period of time it did not seem to get folks’ attention to the degree that would have corrected the problem. 

Mr. HEBERT. Mr. Chairman, on the point about the safety and 

soundness and compliance, the distinction was for the term of art 

that is utilized in the industry. Safety and soundness, trouble condition, means that the credit quality or the capital or the liquidity 

of the organization, or maybe all three, is in jeopardy; and the ability of the bank to manage its assets and liabilities is at risk. Compliance is an equally serious area that management and the board 

of this bank and any other bank certainly would consider as serious. 

That comment was not made to diminish in any way our commitment, our expense. I mean, in the context of what we have done 

since early 2003, we spent, you are right, $12 million in 2003. We 

have already spent this year probably close to $15 million, and add 

to that the technology system, which actually enables us to deliver 

a quality oversight process of 60. This bank has spent well over $80 

million, and I think that is a serious indication of how we take 

compliance and the ability to comply with all the rules and regulations. 

The OCC came to us in early 2003 as a result of the information 

regarding the Saudi Arabian article. We took that deadly serious. 

We brought in KPMG to study and analyze the entire account relationship. We also visited that embassy to inform them when we 

33

made the 160 visits in the city to advise them that we would be 

following higher standards as dictated by the Patriot Act, and they 

were expected to require to comply and we would hold them to that 

compliance. 

Senator COLEMAN. And, again, in March 2004, it still appeared 

that 85 percent of the embassy banking accounts were deficient, 

and that tells us that maybe we have to ramp up some—I am trying to figure out how—and I am going to turn to my colleague now, 

but it is still troubling that, in spite of all those efforts, that was 

the condition that Riggs was in in March 2004. Thank you. 

Senator Fitzgerald. 

OPENING STATEMENT OF SENATOR FITZGERALD 

Senator FITZGERALD. Thank you, Mr. Chairman, and all of you, 

thank you for being here. 

I want to get some basic facts straight before I begin my formal 

questioning. You all are officers of Riggs Bank N.A., the national 

banking association, which has its headquarters officially in 

McLean, Virginia, right? 

Mr. HEBERT. Yes. 

Senator FITZGERALD. There is a separate holding company that 

owns the bank. What is the name of the holding company, the legal 

name? 

Mr. HEBERT. Riggs National Corporation. 

Senator FITZGERALD. Who is the chairman of Riggs National Corporation now? 

Mr. HEBERT. Robert Albritton. 

Senator FITZGERALD. He still is the chairman of the holding company? 

Mr. HEBERT. That is a different Albritton. Robert Albritton. 

Senator FITZGERALD. Is that the son? 

Mr. HEBERT. The son, yes. 

Senator FITZGERALD. OK. Is he the CEO as well of the holding 

company? 

Mr. HEBERT. He is the CEO of the holding company. 

Senator FITZGERALD. Is he an officer at all for the bank? 

Mr. HEBERT. He is the chairman of the bank, but he functions 

in a non-executive status. 

Senator FITZGERALD. OK. Was he in the bank at all when the 

Equatorial Guinea and the Augusto Pinochet accounts were being 

written up by the examiners? 

Mr. HEBERT. Was he in the bank? 

Senator FITZGERALD. Yes. 

Mr. HEBERT. Robert Albritton was a non-executive chairman, so 

he did not necessarily come into the bank and work on a day-today basis. He performed his duties as a member of the board, as 

the chairman of the board. I was the President and CEO of the 

bank, and I was in the bank every day. 

Senator FITZGERALD. And so you were the President and CEO 

of——

Mr. HEBERT. I am the President and CEO. 

Senator FITZGERALD. You have been since 2001, right? 

Mr. HEBERT. February 2001. 

Senator FITZGERALD. And you took over from? 

34

Mr. HEBERT. Joe Albritton. 

Senator FITZGERALD. The father. 

Mr. HEBERT. Yes. 

Senator FITZGERALD. OK. Was the junior Albritton involved with 

any of the account relationships with Chile or Equatorial Guinea? 

Mr. HEBERT. No, sir. No, Senator. He did attend a lunch or—a 

lunch or two. I think it was one lunch with the officers of the bank 

when we visited with the Equatorial Guinea delegation that came 

to Washington. I am not aware that he ever visited with any customers from Chile. 

Senator FITZGERALD. OK. His father may have been involved, 

though, possibly. 

Mr. Lee, you were the OCC examiner in charge of the Riggs examinations at a certain period of time. Let’s start from the beginning. When did you go to work for the OCC? 

Mr. LEE. I went to work for the OCC in 1968. 

Senator FITZGERALD. In 1968. And have you always been based 

in this area, or have you been around the country in different 

spots? 

Mr. LEE. Senator, I have been in many spots. I started out in 

South Carolina, worked in Florida, Georgia, the Midwest, in Cincinnati, Atlanta, and here in Washington for the last 17 years. 

Senator FITZGERALD. In Washington for the last 17 years? 

Mr. LEE. Yes, sir. 

Senator FITZGERALD. OK. When was your first examination of 

Riggs Bank as part of the OCC examiner crew? 

Mr. LEE. I don’t recollect exactly. It was probably—it was after 

1991. 

Senator FITZGERALD. After 1991. And how often would the OCC 

examine Riggs Bank? Maybe once every couple years, or was it 

every year? 

Mr. LEE. A bank the size of Riggs is fairly—it is standard to do 

it once a year. 

Senator FITZGERALD. Once a year. But it is not such a big bank 

that they have permanent on-site OCC examiners like a Citibank 

might have? 

Mr. LEE. When I first—it is classified as a mid-size bank, and 

there is a dedicated examiner to that. When I was with Riggs, 

when I became EIC, I became dedicated. What that means is that 

I spent most of my time devoted to Riggs, but I also did other assignments. 

Senator FITZGERALD. OK. And when did you become an examiner 

in charge of an examination? When was the first examination in 

which you were the examiner in charge? 

Mr. LEE. That was in 1998. 

Senator FITZGERALD. In 1998. And would you have examined 

Riggs every year after 1998? 

Mr. LEE. I was in charge from 1998 onwards. In the 1998 period 

I had other duties, and during most of the year I also served as 

an acting position. 

Senator FITZGERALD. But there would have been an examination 

every year, 1998, 1999, 2000, 2001, right up until you left the OCC 

in 2002. 

Mr. LEE. That is correct, Senator. 

35

Senator FITZGERALD. And you were the examiner in charge on 

each of those examinations. 

Mr. LEE. That is correct, Senator. 

Senator FITZGERALD. During that period 1998 to 2002, did your 

examinations ever write up Riggs Bank for violations of the antimoney laundering laws? 

Mr. LEE. I do not remember ever having violations of the antimoney laundering laws during that period of time, sir. 

Senator FITZGERALD. You produced written reports from your examinations. Are those available? Can this Subcommittee get copies 

of your written examination reports? Or does the Committee staff 

have those? 

We have all of those, OK. I am told we have all of those. 

Now, in 2002, you decided to go to work for Riggs Bank. Can you 

tell me exactly how this came about? Were you doing an audit or 

an examination of Riggs Bank in 2002 as an examiner in charge? 

Mr. LEE. I was continually—during this period of time, I was at 

Riggs, so let me—I have a—if you don’t mind, there are a lot of 

dates involved, and I will read from my time line. 

Senator FITZGERALD. Sure. 

Mr. LEE. Because I cannot remember all the dates. But surrounding this, it really started in early 2002. I orally notified my 

Assistant Deputy Comptroller John Noonan, who was my immediate supervisor, that I intended to retire at year-end 2002. Subsequently, I also discussed this intent to retire with Deputy Controller Finke. 

In mid-2002, approximately May or June—I am not sure of 

that—Mr. Noonan and I informed Riggs Bank management during 

a regular meeting that we had with them of my intent to retire, 

and Mr. Noonan informed the bank management that the new EIC 

would be appointed for Riggs when I left. 

Subsequent to that, on August 7, 2002, in the late afternoon, following a meeting I had had, Bob Roane asked me——

Senator FITZGERALD. Was your examination for the 2002 examination done by August 7? You told them of your intent to retire 

in May. 

Mr. LEE. The bank was informed of my intent to retire somewhere in the May-June period, yes. 

Senator FITZGERALD. OK. And did you tell them the date of your 

expected retirement? 

Mr. LEE. Somewhere around year-end. It would be late in the 

year. There would be a new EIC. 

Senator FITZGERALD. But all during this time was an examination of Riggs continuing? 

Mr. LEE. There is a continuing examination of targeted different 

type examinations all along that period of time, Senator. 

Senator FITZGERALD. OK. And you may continue with—you started to say ‘‘somewhere around August’’? 

Mr. LEE. August 7, I was in a meeting, and following that meeting, Mr. Roane asked me if I still planned to retire, and, of 

course——

Senator FITZGERALD. Who is Mr. Roane? 

Mr. LEE. Bob Roane is the executive Vice President and was 

Chief Operating Officer of the bank. 

36

Senator FITZGERALD. How do you spell that name? 

Mr. LEE. R-o-a-n-e. 

Senator FITZGERALD. OK. 

Mr. LEE. And he had at that point in time oversight for the London operations, and I was summarizing the condition of the London 

operations with him following an examination in July in London. 

Following that meeting, he then asked me if I still planned to retire from the OCC, and I did confirm that with him. Mr. Roane 

stated that if that is so, he would like to discuss possible employment opportunities with me at Riggs. I informed Mr. Roane that 

I would not be able to discuss anything until I informed my Supervisory Office of that. This was in the late afternoon of August 7. 

The exact time I don’t remember. It was somewhere around 5 

o’clock. 

On August 8, approximately 8 a.m., first thing, I called my ADC, 

John Noonan, and informed him of the conversation I had had with 

Bob Roane. It was my desire that since I was retiring I would like 

to pursue this discussion. Mr. Noonan agreed, informed me that we 

would have to discuss this with our ethics official, who was Jason 

Redwood. I immediately called Mr. Redwood following my conversation with Mr. Noonan, and Mr. Redwood and I discussed it. He 

then issued a letter of recusal, which says I could not have any 

more activity, anything to do with the bank. 

I was not in the bank on April 8 because I had already had that 

conversation with Mr. Roane. I was with the OCC for 34 years. I 

was proud of all the accomplishments I had. 

Senator FITZGERALD. OK. From that time on did you recuse yourself from the ongoing examination of Riggs Bank? 

Mr. LEE. Yes, sir, I did. 

Senator FITZGERALD. So you were no longer involved with the examination of Riggs Bank from that point in time on? 

Mr. LEE. I was no longer involved with Riggs from the OCC’s 

perspective in any capacity, sir. 

Senator FITZGERALD. OK. But they continued and they did make 

you a job offer, which you accepted? 

Mr. LEE. Subsequent to that on August 12—August 13, I received a letter, a job offer, which I accepted. That is correct. 

Senator FITZGERALD. OK. So from the point at which they offered 

you the job, you did not take any official action with respect to that 

OCC examination of Riggs Bank? 

Mr. LEE. Senator, I had no action, no involvement with that 

bank at all after that. 

Senator FITZGERALD. OK. 

Mr. LEE. Until, of course, I joined Riggs. 

Senator FITZGERALD. Well, that clears that up. I just wonder, 

now the Committee staff has written in their report, ‘‘In the case 

of Riggs, the evidence also indicates that the OCC’s examiner in 

charge appeared to have become more of an advocate for the bank 

than an arm’s-length regulator. In 2001, for example, he advised 

more senior OCC personnel against taking a formal enforcement 

action against Riggs because the bank had promised to correct 

identified anti-money laundering deficiencies.’’

Is that true? 

37

Mr. LEE. Senator, I never advised against taking any enforcement action. In fact, nobody in the OCC ever advised against taking enforcement action against the OCC. I recommended certain 

actions that could be taken and how we should address these. And 

through the collective decision of senior management, an action 

plan was developed. 

Senator FITZGERALD. They also allege that in 2002, you ordered 

examiners not to include a memorandum or work papers on the 

Pinochet examination in the OCC’s electronic database. Is that 

true? 

Mr. LEE. Senator, I never ordered anyone not to include anything 

in the database. Several exams were ongoing while I was there, 

and I think the confusion probably—the April 2002 exam, where 

the Pinochet issues came up, all that was separated and made into 

a special review that was ongoing when I left. 

Both of those targeted exams, as we are referring to them, Senator, the April exam, the exit—or the review with management occurred on July 30. I attended via telephone from London. That 

final document was never supplied to me. I was recused from the 

bank on August 8, so I never closed it out in EV. It was still in 

progress. The actual letter to the bank was issued to the bank I 

think in October, well after I left the bank and after I left the OCC 

and, in fact, was in the employ of the bank at that point in time. 

So what happened after I left, Senator, I cannot answer that. 

You will have to speak to the OCC. 

Senator FITZGERALD. One final question. Does anybody who has 

any unclean hands in your opinion from the anti-money laundering 

issues that have been raised by this Subcommittee—are any people 

who may have had anything to do with facilitating those transactions and the failure to file the required reports—are they still 

at the bank? 

Mr. Hebert, maybe you could answer that as President and CEO. 

Mr. HEBERT. To the best of my knowledge, everyone who perpetrated a fraud or was involved in any activity that was problematic for us has either been terminated or they are under review 

right now. 

Senator FITZGERALD. OK. And you include in that the younger 

Mr. Albritton, you say had nothing to do with any of these violations that have been brought to light? 

Mr. HEBERT. That is correct. 

Senator FITZGERALD. OK. The Albritton family owns about 50 

percent of the holding company. Is that correct? 

Mr. HEBERT. I think it is 35 or 40 percent. 

Senator FITZGERALD. OK. Do they have a super voting stock at 

all or is it just——

Mr. HEBERT. No. 

Senator FITZGERALD [continuing]. Straight common? OK. 

Mr. HEBERT. Straight. 

Senator FITZGERALD. And the rest is publicly traded? 

Mr. HEBERT. Yes. Everything is—it is public stock. 

Senator FITZGERALD. OK. But the Albritton family is still in control, and Mr. Albritton, Sr., who may have had something to do 

with some of these relationships, he may no longer be an executive 

38

officer or chairman of the board, but he is the one who owns most 

of that stock, isn’t he? 

Mr. HEBERT. He owns most of the stock. 

Senator FITZGERALD. So isn’t he still pretty much in the driver’s 

seat? 

Mr. HEBERT. No, sir. Senator, from the point at which I became 

President and CEO of Riggs Bank, I have been directing the activities, managing and dealing with the issues as they come up in the 

bank. Mr. Albritton is not——

Senator FITZGERALD. But he controls a huge bloc, almost 50 percent, of the stock. 

Mr. HEBERT. As a shareholder, he controls 35 or 40 percent of 

the stock. But that does not reach into the organization on a management or a directive basis. 

Senator FITZGERALD. OK. Were there other exams done by the 

Federal Reserve or the FDIC during this whole period in question? 

Maybe Mr. Lee would know, or Mr. Hebert, you would know? I am 

sure the FDIC has been in there. 

Mr. HEBERT. The Federal Reserve examines the holding company. 

Senator FITZGERALD. The holding company. 

Mr. HEBERT. And the OCC examines the bank. 

Senator FITZGERALD. Right. What about the FDIC? 

Mr. HEBERT. The FDIC has not conducted an examination in the 

bank. 

Senator FITZGERALD. OK. And the Federal Reserve’s holding 

company examinations have not gotten into any of this individual 

account issue at the bank level. 

Mr. HEBERT. The most recent exam by the Federal Reserve addressed issues that we had in Miami, which is an Edge Act corporation that is monitored and the oversight is lodged with the 

Federal Reserve Bank in Atlanta. And they conduct a regular examination in that organization. 

Senator FITZGERALD. They look at all your subsidiaries, don’t 

they? 

Mr. HEBERT. Yes. 

Senator FITZGERALD. And you have subsidiaries in the Channel 

Islands? 

Mr. HEBERT. Excuse me. They do not look at—the Federal Reserve does not look at the Channel Islands subsidiary. The Channel 

Islands subsidiary is subject to the Jersey financial services regulation. The OCC—those are subsidiaries of the bank. Jersey is a subsidiary of the bank. 

Senator FITZGERALD. Oh, so it is not a subsidiary of the holding 

company. 

Mr. HEBERT. No, sir. 

Senator FITZGERALD. OK. How about your brokerage? 

Mr. HEBERT. Brokerage business is in the bank and we—it was 

in the bank. We have outsourced that now. 

Senator FITZGERALD. OK. Thank you. 

Senator COLEMAN. Thank you, Senator Fitzgerald. 

Senator Levin, I believe you had a very line of questioning because I do want to get to the second panel and then the third 

panel. 

39

1See Exhibit 7a which appears in the Appendix on page 259. 

Senator LEVIN. Thank you, Mr. Chairman. 

Just two things. One is Exhibit 7a,1 where, again, we have an 

E-mail from Lois Trojan, who has been previously identified. It has 

to do with the Riggs conclusion memo, which Mr. Lee said was not 

in fact done before he left. This memo says, to Joseph Boss, ‘‘Joe, 

here are the two docs’’—I am not going to identify the other document because it would be inappropriate to do so. However, the one 

in question is the conclusion memo. ‘‘Here are the two docs. I put 

hardcopies of both with the work papers.’’

This is additional clear evidence that the conclusion memo was 

concluded and put with the working papers instead of into the 

database and it was done so, according to two sworn statements, 

at your direction, Mr. Lee. And that is where it stands. But that 

is, would you not acknowledge—whether you have ever seen this 

or not, I do not know, but would you not acknowledge that Exhibit 

7a shows that a hardcopy of the Riggs conclusion memo was placed 

into the work papers? Would you agree with that? 

Mr. LEE. Senator, if I may, I think, in my interpretation of this, 

without knowing—seeing the conclusion memo, what that says to 

me is Lois Trojan put her conclusion memo in the work papers. 

Each examiner that’s looking at a specific area would do a conclusion memo. The overall conclusion memo is done by the examiner 

in charge of that area, Mr. Boss, and then that comes to me and 

then that goes into a final report to the bank. None of those latter 

two documents are what I’m referring to. 

Senator LEVIN. An earlier version of it. 

Mr. LEE. An earlier version, and it’d be, work could be—he could 

be getting—if there were 20 people, 20 different conclusion memos. 

Also, I agree it was probably put as a, as my statement is that I 

think Mr. Boss was more comfortable keeping the work papers, 

while the exam was going on, in hardcopy, and in the Office there 

was never any intent or any order by me to not do that, not to 

enter that documentation in EV. But the exam was continuing 

while I was in the bank. I had never gotten a final conclusion 

memo. And then I was recused, sir, and I cannot address the Subcommittee to tell what happened after that. 

Senator LEVIN. Again, paragraph 4, Joe Boss’s sworn affidavit, 

says ‘‘I reviewed the first draft of the memo, made a few comments, 

and approved the memo in July of 2002.’’ He was the chief examiner? 

Mr. LEE. He was the examiner who was examining Lois Trojan’s 

work. I never got a final overall conclusion memo and reviewed 

that. It’s my review that——

Senator LEVIN. I just have one question for Mr. Hebert, something which just has been troubling me, and I think the only way 

to address it is to ask you the question. This relates to President 

Obiang in Equatorial Guinea. 

We got a State Department report, public report, issued in February 2001. Now, this is just before you had lunch with the President of Equatorial Guinea. And this State Department report is 

highly critical of the Equatorial Guinean Government. It says that 

‘‘The investment and other uses of oil revenues lack transparency, 

40

1See Exhibit 49 which appears in the Appendix on page 493. 

2See Exhibit 12 which appears in the Appendix on page 297. 

despite repeated calls in previous years from international financial 

institutions and citizens for greater financial openness. Lack of 

public transparency in national finances has undermined the country’s economic potential. Little evidence is apparent that the oil 

wealth is being devoted to the public good. The government’s 

human rights record remained poor and continued to commit serious abuses.’’

Within weeks, a month or so after this report is out, you and the 

leadership of the bank have lunch with this man who everyone 

knows is a dictator. By the way, in the 2003 and 2004 Washington 

Post editions of Parade magazine, one of the world’s 10 worst dictators is President Obiang.1 He is on the front cover with the other 

ones, including Castro and, 2003, Saddam Hussein and North Korea’s dictator and a few other choice leaders like that. They say 

about Obiang here that he says on his national radio, state radio, 

that Obiang is ‘‘in permanent contact with the Almighty’’ and ‘‘can 

decide to kill without anyone calling him to account.’’

This is a pretty visible guy out here now, OK? Now, you have 

lunch with him and you are obviously soliciting his business. Then 

you write a letter May 17, signed Robert Albritton, Larry Hebert, 

Timothy Coughlin, president of Riggs, and Kareri, the man who 

was here before. And you say: 

‘‘Dear Mr. President, We hope this letter finds you well and rested after your trip to Washington. We would like to thank you for 

the opportunity you granted us in hosting a luncheon in your honor 

here at Riggs Bank. We sincerely enjoyed the discussions. We 

formed a committee of the most senior officers at Riggs that will 

meet regularly to discuss our relationship. We are confident we can 

be of great assistance to you by providing you access to the best 

financial expertise both at Riggs and within the entire financial 

services industry. We are also confident that, together, we can reinforce your reputation for prudent leadership——’’

Mr. HEBERT. Is there an exhibit that you’re referring to? 

Senator LEVIN. Yes. Exhibit 12.2

Mr. HEBERT. Exhibit 12. 

Senator LEVIN [continuing]. ‘‘For prudent leadership and administration as you lead Equatorial Guinea into a successful future. 

Thank you for the opportunity to assist you. With gratitude.’’

Gratitude. How do you write that stuff to a man as abominable 

as this guy, and known to be abominable? How do you write—how 

do you, basically, live with yourself? I have to ask you that question. 

Mr. HEBERT. Senator, the lunch with the president was a request 

on my part to meet this person. They had a significant amount of 

money in the bank. I wanted to see this person, I wanted to talk 

with him if that was possible. We wanted to put more of the executives in front of this person than had been the case in the past. We 

wanted to demonstrate to the Equatorial Guinean Government that 

the senior management of this bank was involved or was observing 

this account. 

41

This letter, first of all, the State Department circular, I was not 

aware of that when we had the lunch or before the lunch. It’s prudent on any bank’s part to try to meet the people. I was new to 

the bank. I didn’t know these people. They had a lot of money in 

the account. They had more coming. I wanted to hear this fellow 

talk about his country, talk about what he was trying to do with 

all this wealth that was going to continue to grow at an even more 

rapid rate, based on the information that had been provided to me. 

And we asked him to come in. 

This letter is a letter that is the type of letter that would be written in a diplomatic presentation. We were not passing judgment in 

this letter on his activities here. I wanted to hear what he was 

doing with the money, as far as the country—what was all the oil 

revenue going to. We were presented a booklet that detailed the 

construction projects that were underway throughout their country, 

including roads, power generation, and infrastructure. They were 

also trying to construct, as I understood it, a liquefied natural gas 

production facility that was supposed to be set up for the employment of his people. The country was, I think, as I recall, in 1995 

or 1996, was told they had $5,000 in the bank and they had no——

Senator LEVIN. The oil revenue came in. 

Mr. HEBERT. Then the oil revenue just came in——

Senator LEVIN. That is what it is all——

Mr. HEBERT [continuing]. And with that, Senator, it was important, I think, for us to hear what this man would say. The information that you cited here is out there. It was my attempt to try to 

know the customer. 

Senator LEVIN. And after this information became ever more 

public, you continued to do business with him. 

Mr. HEBERT. Well, we watched him closely. We took prudent 

steps to be very careful with this gentleman. What he did say——

Senator LEVIN. You call him a gentleman? 

Mr. HEBERT. Well, I was just——

Senator LEVIN. I call him a dictator. 

Mr. HEBERT. I was referring to the letter. Equatorial Guinea—

the question that I wanted to focus was there was no way that this 

country was going to be able to assume or absorb all the wealth. 

And what were they going to do with this? Where were they going 

to put it? And what we discussed at this lunch was what was called 

the Fund of the Future, which he had interest in establishing, 

which was a direction of funds from the oil productivity into a trust 

fund that was going to be utilized for support of the Equatorial 

Guineans in the future, when the oil ran out. It was very similar 

to what we understood to be the case in Norway, in Kuwait, and 

also what was set up for the Alaskan Indians. 

Senator LEVIN. Norway is totally transparent as to what they do 

with their oil revenues. This guy publicly is looting his own treasury for personal use——

Mr. HEBERT. At the time——

Senator LEVIN [continuing]. According to our own State Department. You make no effort to find out when all these millions of dollars are transferred out of his government’s accounts into private 

accounts and into companies, in offshore entities that you helped 

42

set up that cannot be tracked. Somehow or other there has to be 

a conscience in here. There has to be some—are you not troubled? 

Mr. HEBERT. I was troubled. That’s why we asked him to leave 

the account, leave the bank. 

Senator LEVIN. That was 1994—I mean 2004. 

Mr. HEBERT. And that——

Senator LEVIN. After you were pressured by terrible negative 

publicity, terrible OCC rulings. 

Mr. HEBERT. We weren’t pressured. We were getting information 

from whatever source we were able to obtain. And we were applying as rapidly as we could the installation of the oversight compliance and systems. Someone said earlier that a computer is not all 

that we needed. But we have 20 separate monitoring and detection 

systems installed as a result. We monitor around 99.6 percent of 

every dollar that flows through this bank now. 

We were unable to do that at this time, so we were not able to 

track it down. I think we’ve come a long way, and we certainly 

worked hard to do that. We would—with the information that we 

have in the bank now, we would not have had to take so long to 

find this information and track this down. And I have to just add 

one thing for the record. The Patriot Act was most beneficial for 

us, because we were able to stretch across and confer with other 

banks. The Patriot Act internationally—I know there’s work being 

done on trying to extend that to other countries. We ran into some 

difficulty trying to track this money once it left the United States. 

Senator LEVIN. Mr. Hebert, we know about the Patriot Act. We 

helped draft the section relative to money laundering. It came out 

of hearings of this Subcommittee. We are all familiar with that. 

The question is, the Patriot Act was 2001. These activities are 

both before and after the Patriot Act until 2004. 

Mr. HEBERT. And we found these activities. We developed this information from our systems. That’s what I’m saying. 

Senator LEVIN. Thank you. Thank you, Mr. Chairman. 

Senator COLEMAN. Thank you, Mr. Hebert. I am going to excuse 

this panel and thank you for your testimony, gentlemen. 

Mr. HEBERT. Thank you very much for giving us the opportunity 

today. 

Senator COLEMAN. I would now like to call the second panel to 

today’s hearing. This panel is comprised of individuals who are either current or former employees of the Office of the Comptroller 

of the Currency, or OCC, of the U.S. Department of Treasury. OCC 

regulates and supervises our national banks to ensure a safe, 

sound, and competitive banking system. 

I would like to take this opportunity to welcome Jennifer C. 

Kelly, the Deputy Comptroller for Mid-Size and Credit Card Bank 

Supervision at OCC; John Noonan, the former Assistant Deputy 

Comptroller at OCC; Daniel Stipano, the Deputy Chief Counsel at 

OCC; and finally, Lester Miller, the Examiner-in-Charge for Riggs 

Bank at OCC. 

The purpose of this panel is to examine the effectiveness of the 

OCC’s oversight of the banking system, specifically as it relates to 

anti-money laundering statutes, including the recently enacted Patriot Act. 

43

1The prepared statement of the Office of the Comptroller of the Currency appears in the Appendix on page 86. 

I appreciate your attendance at today’s important hearing and 

am anxious to hear your testimony. 

Before we begin, pursuant to Rule 6, all witnesses before this 

Subcommittee are required to be sworn. At this time, I would ask 

you to all stand and raise your right hand. 

Do you swear that the testimony you are about to give before 

this Subcommittee is the truth, the whole truth, and nothing but 

the truth, so help you, God. 

Ms. KELLY. I do. 

Mr. NOONAN. I do. 

Mr. STIPANO. I do. 

Mr. MILLER. I do. 

Senator COLEMAN. We will be using a timing system for this 

panel. Again, before the red light comes on you will see lights 

change from green to yellow. At that point, please conclude your remarks. Your written testimony will be included in the record in its 

entirety. We ask you to limit your oral testimony to no more than 

10 minutes. 

Mr. Stipano, I understand that you will be presenting the OCC 

statement this morning. Please proceed. 

JOINT TESTIMONY OF DANIEL P. STIPANO,1 DEPUTY CHIEF 

COUNSEL, OFFICE OF THE COMPTROLLER OF THE CURRENCY, U.S. DEPARTMENT OF THE TREASURY, WASHINGTON, DC; JENNIFER C. KELLY, DEPUTY COMPTROLLER, 

MID-SIZE AND CREDIT CARD BANK SUPERVISION; JOHN 

NOONAN, FORMER ASSISTANT DEPUTY COMPTROLLER; AND 

LESTER MILLER, EXAMINER-IN-CHARGE (RIGGS BANK) 

Mr. STIPANO. Chairman Coleman, Ranking Member Levin, and 

Senator Fitzgerald, my colleagues and I appreciate this opportunity 

to discuss the supervisory and enforcement actions the OCC has 

taken against Riggs Bank, as well as the challenges that we and 

the other regulatory agencies face in combatting money laundering 

and terrorist financing in the United States. I am joined today by 

Jennifer Kelly, Deputy Comptroller for Mid-size and Credit Card 

Bank Supervision, and Lester Miller, Examiner-in-Charge at Riggs. 

Since the passage of the Bank Secrecy Act in 1970, our Nation’s 

anti-money laundering laws have been vital weapons in the fight 

against drug trafficking, organized crime, and other illicit activities. Today, in the aftermath of the September 11 terrorist attacks, 

these laws take on special importance. As the OCC’s Deputy Chief 

Counsel, I can tell you without any hesitation that the OCC is committed to denying terrorists and criminal elements access to our 

Nation’s financial system and to ensuring that law enforcement 

agencies have the information they need to do their jobs. 

Overall, the OCC’s BSA compliance supervision has been effective and we have had a number of important successes in this area. 

Perhaps most importantly, most national banks have strong antimoney laundering programs in place, and some of our largest national banks have programs that are considered among the best in 

the world. Our examiners have also worked closely with law enVerDate 0ct 09 2002 08:29 Oct 15, 2004 Jkt 095501 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 C:\DOCS\95501.TXT SAFFAIRS PsN: PHOGAN
44

forcement in major money laundering cases, and we have coordinated with other regulatory agencies to maximize our impact. 

The focal point of the OCC’s work in the BSA area is the National Anti-Money Laundering Group, an internal task force that 

was formed in 1997. Among the Group’s achievements is the creation of a program to identify high-risk banks for expanded-scope 

BSA examinations by agency experts. In addition, it has developed 

training programs and drafted handbooks and guidance for our examiners and for national banks. Our examiners recently provided 

assistance and training in anti-money laundering techniques to the 

Coalition Provisional Authority of Iraq, and the World Bank is 

using our anti-money laundering school as the basis for training 

bank examiners around the world. 

While these are significant accomplishments, we are deeply troubled by the situation we have confronted at Riggs. As Comptroller 

Hawke has said, Riggs represents a failure of supervision, and we 

agree that this Subcommittee’s interest in Riggs is entirely appropriate. Comptroller Hawke ordered a top-to-bottom review of what 

went wrong at Riggs and set a September 1 deadline for our Quality Management Division to report back to him. We will provide 

the Subcommittee with a copy of that report as soon as it is complete. 

We will know a great deal more about the situation at Riggs 

when the review is finished. What I can tell you now, however, is 

that it is clear that we should have been more aggressive in our 

oversight of Riggs’ BSA and anti-money laundering compliance program. This is not a situation where deficiencies in the bank’s systems and controls were undetected. But we should have insisted on 

remedial steps much earlier and much more forcefully than we did, 

and we should have taken formal enforcement actions at a much 

earlier stage in the process. We also should have done more extensive probing and transaction testing of those accounts—as our own 

BSA examination procedures require. Finally, we did not fully appreciate the risks involved in the bank’s embassy banking business 

and in certain other accounts handled by the bank, as well as the 

significance of the deficiencies in the bank’s systems and controls. 

The OCC discovered problems with Riggs’ BSA and anti-money 

laundering program as early as 1997. However, the deficiencies we 

identified in those early years were not of the same magnitude as 

the violations that led to our cease and desist orders and civil 

money penalty in 2003 and 2004. The deficiencies we identified in 

the late 1990’s involved problems with training, with the bank’s information systems, with its internal monitoring process, and with 

its BSA internal audit coverage. Overall, we found that Riggs’ program was either satisfactory or generally adequate, which means 

that it met the minimum requirements under the law for a BSA 

program. Because the bank’s management appeared willing to correct the deficiencies, we addressed them through a series of informal supervisory actions. 

After the September 11 terrorist attacks, the OCC escalated its 

efforts to bring Riggs’ compliance program to a level commensurate 

with the risk profile of its business lines. As part of our supervisory 

response to the September 11 attacks, we conducted a series of 

45

anti-terrorist financing reviews at large and high-risk banks, including Riggs. 

During 2002, we also discovered suspicious transactions involving accounts controlled by the former Chilean dictator, Augusto 

Pinochet. We took quick action to ensure that the suspicious transactions did not recur in the accounts, and we promptly notified law 

enforcement. The bank also agreed to close the accounts. Our discovery of the Pinochet accounts was one of several events that year 

that prompted us to begin a more detailed review of the bank’s 

BSA and anti-money laundering program. 

The examination we began in January 2003 focused on Riggs’ 

embassy banking business and, in particular, on the Saudi accounts. The examination lasted for approximately 5 months and involved agency experts in the BSA and anti-money laundering area. 

It disclosed serious BSA compliance program deficiencies that resulted in the bank’s failure to identify and report suspicious transactions occurring in the Saudi Embassy accounts. The findings 

from the January 2003 examination formed the basis for the July 

2003 cease and desist order. 

Throughout this examination, we were in regular contact with 

the FBI investigators. We provided the FBI with voluminous 

amounts of documents and information on the suspicious transactions a,nd we hosted a meeting with the FBI to discuss these documents and findings. We also provided the FBI with expertise on 

both general banking matters and on some of the complex financial 

transactions that were identified. 

The OCC began its next examination of the bank’s BSA compliance in October 2003. The purpose of this examination was to assess compliance with the order and the USA Patriot Act and to review accounts related to the Embassy of Equatorial Guinea. The 

examiners found that, as with the Saudi Embassy accounts, the 

bank lacked sufficient policies, systems, and controls to identify 

suspicious transactions concerning the bank’s relationship with 

Equatorial Guinea. The findings from this examination, as well as 

from previous examinations, formed the basis for the OCC’s recent 

civil money penalty and cease and desist actions. 

Our decision to impose a civil money penalty on the bank was 

reached in close consultation with the Financial Crimes Enforcement Network, or FinCEN, which is the administrator of the Bank 

Secrecy Act and which has specific authority under that statute to 

assess penalties for BSA violations. The $25 million penalty is the 

largest-ever monetary fine for BSA violations, and it is particularly 

large for an institution of Riggs’ size. This penalty will serve as a 

stern warning both to Riggs and to other financial institutions that 

the OCC and the U.S. Government are seriously committed to BSA 

compliance. 

While we believe that the current regulatory scheme generally 

works well with respect to banks, there is clearly room for improvement. We are already taking a number of steps to improve our BSA 

and anti-money laundering supervision. For example, together with 

the other Federal banking agencies, we recently developed revised 

examination procedures for several key sections of the USA Patriot 

Act, and we expect to be issuing a revised version of our BSA handbook by year end. We are making changes to our enforcement polVerDate 0ct 09 2002 08:29 Oct 15, 2004 Jkt 095501 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 C:\DOCS\95501.TXT SAFFAIRS PsN: PHOGAN
46

icy to emphasize areas where there is a statutory mandate to take 

enforcement actions under certain circumstances, such as the BSA 

area. We recently initiated two programs that will provide stronger 

and more complete analytical information to assist our examiners 

in identifying banks that may have high money laundering risk. 

And we are exploring how we can systematically capture BSA and 

anti-money laundering criticisms in examination reports so we can 

track situations where no formal follow-up action has been taken. 

To this end, our Committee on Bank Supervision recently sent an 

alert to remind OCC examination staff of the need for vigilance in 

this vital area. 

While these are all significant steps, prevention and deterrence 

of money laundering and terrorist financing cannot be accomplished by any one agency standing alone. Rather, better coordination and information sharing is needed among all of the agencies 

involved in the fight against money laundering and terrorist financing, as well as on a cross-border basis. We live in a world 

where money launderers have become increasingly sophisticated 

and terrorist financers are particularly adept at engaging in transactions that are not detected by even the most sensitive software 

monitoring programs. Without greater information sharing, especially from law enforcement and the intelligence agencies to banks 

and to the bank regulatory agencies, along with data analysis, detecting money laundering and terrorist financing could become an 

inefficient, ineffective exercise. We are very optimistic, however, 

that the new BSA Direct and other initiatives being undertaken by 

FinCEN will make substantial, positive changes in information 

sharing and data analysis. 

The OCC is committed to taking an honest look at what went 

wrong with our supervision of Riggs and in taking steps to ensure 

that nothing like this happens again. We will continue to work 

closely and cooperatively with law enforcement, with our colleagues 

at the other financial institutions regulatory agencies, and with 

Members of this Subcommittee to ensure that our Nation’s financial institutions are not used as vehicles for money laundering, terrorist financing, or other illicit activities. 

Senator COLEMAN. Thank you, Mr. Stipano. And I do want to 

thank you for your candor in acknowledging the Riggs situation 

and the way it was handled. 

Also, and it is obvious to you and to all of us, but these laws in 

the post-September 11 world, what you are doing is critically important that you do it. The ability to terrorists to do what they 

want to do is, in many ways, dependent upon folks either perhaps 

turning a blind eye or not seeing it, and so this is a national security issue in this way. So again, I appreciate your candor and this 

kind of acknowledgement on the part of all of us why even going 

back and figuring out what happened is critically important. 

A timing question. When did OCC first become aware that Riggs 

was involved in handling an account involving the leadership in 

Equatorial Guinea? 

Mr. MILLER. When did we become aware of Equatorial Guinea? 

Senator COLEMAN. Yes. 

Mr. MILLER. There was a news article in the L.A. Times, I believe, and we got word of that. 

47

Senator COLEMAN. What is the date of that? 

Mr. MILLER. Approximately January 2003, January 22, I believe. 

Senator COLEMAN. And how long did it take you to react to that 

news article? 

Mr. MILLER. David Hunter and I met with Bob Roane to get the 

bank’s side of the story immediately. After that, Dan Stipano said 

that we needed to look into these accounts, so we put a request letter together and informed our senior staff that we intended to look 

at the accounts during our review of the Saudi Arabia accounts, 

which was going on at the time. Because the Saudi review was 

very extensive, we never had the time to do the Equatorial Guinea 

review. So we tabled it and told Riggs that we had concerns with 

the Equatorial Guinea accounts and that they needed to fix them. 

We also told them that we were going to come back in October to 

do a full review of those accounts. 

Senator COLEMAN. And what is the date of this conversation? 

Mr. MILLER. That I don’t remember. 

Senator COLEMAN. Riggs closed the account, though, in February 

2004, about a year after this L.A. Times article that you said 

brought the matter to your attention? 

Mr. MILLER. Yes, Mr. Chairman. 

Senator COLEMAN. And the Saudi exam was, what, March 2003? 

Mr. MILLER. The Saudi exam started on January 6, 2003. After 

3 weeks we had found serious issues with the accounts. Of course 

we knew about the news report alleging terrorist financing activity 

through the Saudi accounts and we wanted to check that out thoroughly. But we were running out of time and we had to request 

additional information from the bank. So we left the bank for approximately 1 month so we could restaff and the bank could get the 

information that we needed to continued our review. We restaffed 

and came back in March and continued the review. 

Senator COLEMAN. Was the bank told, I think it must have been 

around the time of the Saudi exam, that the results of the exam 

could lead to a consent order? And do you recall the reaction of the 

board? 

Mr. MILLER. On March 17, we met with Riggs’ staff and informed 

them of all of our concerns with the Saudi accounts. It was kind 

of a Saudi mini-exit meeting, so to speak. And my supervisor, John 

Noonan, indicated the severity of the issues, and that we would 

possibly cite a violation of the Bank Secrecy Act, specifically 12 

CFR 21.21, which would require a formal enforcement action. 

Senator COLEMAN. I want to get back to the board. I think my 

colleague, Senator Fitzgerald, raised the issue of the ‘‘Allbrighten’’—is that how your pronounce that? 

Mr. MILLER. Albritton. 

Senator COLEMAN. Albritton. Was the wife of Joseph Albritton involved in any board activities? 

Mr. MILLER. She is on the board of directors of the bank. 

Senator COLEMAN. Do you recall any conversations about the—

you had to prepare for the annual board meeting on October 15, 

2002? 

Mr. MILLER. Yes, Mr. Chairman. 

Senator COLEMAN. And surrounding this meeting, did you find 

that the board management was taking BSA compliance seriously? 

48

1See Exhibit 21 which appears in the Appendix on page 336. 

Mr. MILLER. It appears so. When I came into the bank, I had to 

finish the anti-terrorist financing target review and issue a memo 

to the bank. In that memo, I outlined the steps the bank needed 

to take to shore up BSA deficiencies. I knew Riggs had very high 

BSA risk because Mr. Noonan briefed me on that. So I wanted to 

make sure that the board knew that the BSA issues we raised were 

serious, that bank management had promised to take corrective action by December 31, 2002, and that we would start an exam in 

January 2003 to see if the deficiencies had been fixed. 

Senator COLEMAN. Do you recall any comment by Mrs. Albritton 

about the Pinochet account? 

Mr. MILLER. I recall she said something to the effect of why did 

the Pinochet account have to be closed. 

Senator COLEMAN. She didn’t seem to understand the significance of BSA? 

Mr. MILLER. It was not apparent to me. 

Senator COLEMAN. Mr. Noonan, in the Spring of 2003, OCC conducted a target BSA. This is the Saudi Arabia exam? 

Mr. NOONAN. Yes. 

Senator COLEMAN. And during that exam—it is Exhibit 21, so we 

are going to 2003—you write an E-mail——

[Pause.] 

Mr. NOONAN. I am sorry, Senator, you said Exhibit 23? 

Senator COLEMAN. Yes, I am looking at Exhibit 23, an E-mail 

from you to Lester Miller dated March—it is at the bottom of the 

exhibit. You say, ‘‘Clearly Riggs . . .’’—I am sorry. I apologize. Exhibit 21.1

‘‘Clearly Riggs’ management has failed to properly respond to 

previously identified BSA related issues. And OCC (me) failed to 

take sufficient steps to ensure that the bank’s response was complete, and implemented.’’

In hindsight, what should the OCC have done different? 

Mr. NOONAN. I agree with Mr. Stipano’s statement and with the 

comptroller’s previous statements that I should have acted as the 

Supervisory Office responsible for the supervision of Riggs Bank 

much earlier. In my recent re-review of the record, I would judge 

that I should have moved to take more vigorous action, at least in 

2001. 

Senator COLEMAN. I understand, Mr. Noonan, that during the 

Pinochet exam in the Summer of 2002, that Riggs Bank questioned 

the right of your examiners to possess or get information relating 

to the Pinochet accounts. Is that correct? 

Mr. NOONAN. I’m a little confused, and I think there’s been some 

confusion about what was going on when and associated with 

which activity. If I may give you a little bit of an expanded horizon 

there. The April 2002 examination, BSA examination, was targeted, among other things, on international private banking. And 

during that examination, transactions, unusual transactions with 

respect to Mr. Pinochet were identified by the examiners. We didn’t 

have sufficient information to draw final conclusions on the 

Pinochet matter, so the examiner in charge of that examination, 

Mr. Boss, suggested we come back with a more focused review on 

49

Mr. Pinochet’s—and that’s what happened in June and July, I 

guess. The reason he needed to come back and do that, it was because he was also scheduled to conduct this anti-terrorist finance 

examination target at Riggs that Mr. Stipano mentioned earlier. 

So there was a series of three exams, if you will. There was the 

normal Bank Secrecy Act exam targeted on international banking, 

which was largely conducted in April 2002, followed by the anti-terrorist finance review that was done in lots of banks across the 

country, followed immediately by a follow-up on the Pinochet matter. So I am not sure that gives you the time horizon of what happened. But what specifically happened in relation to which activity, 

I don’t have——

Senator COLEMAN. Did you have to talk to the bank to get—did 

the bank hesitate or provide resistance to giving you Pinochet documents? 

Mr. NOONAN. I don’t recall that it was Pinochet documents, but 

I do recall—it may have been. I don’t recall specifically what account. They did resist. The International Department specifically 

resisted providing us information. They didn’t seem to understand 

our right to the information. And once we explained it to them and 

we got counsel talking to counsel, the matter was resolved. 

Senator COLEMAN. Let me just focus a little bit on the civil penalty, which—in the end, very significant, but it took awhile to get 

there. A little bit about—and Ms. Kelly, just kind of looking 

through my notes, am I correct that for a while you felt that the 

bank was taking all steps to correct these deficiencies? Did you oppose the CMP when it was first raised? 

Ms. KELLY. We were still having discussions about whether a 

CMP was necessary or not. We were in the early deliberative 

phase, and I was of the opinion that a civil money penalty was not 

necessary at that point in the process because of the level of action 

the bank was taking in response to the discussions we had with 

them in late March. 

Senator COLEMAN. I recall in the earlier panel there was a discussion, I think it was an internal audit that Riggs did, that by 

2004, they indicated, about 85 percent of the accounts were still 

problematic. Can you help me understand that? With all the actions, if they were taking the kind of actions that they were taking, 

how were they still in that state at that time? 

Ms. KELLY. As Deputy Comptroller, I was representing the supervisory office. Our primary objective is to identify the problems 

and tell the bank what needs to be fixed. At that point in time, we 

had laid out for them what the problems were. They moved very 

quickly in response to that. You heard on the earlier panel about 

all the experts they hired and all the things they were doing. But 

all along our communications with the bank were that while you 

seem to be taking the right steps, we are going to be watching you 

closely to see whether these steps are, in fact, effective in achieving 

the results we’re looking for. So, at any time we always have the 

possibility of opening a civil money penalty case if those steps 

aren’t effective. 

Senator COLEMAN. But even in light of the steps that are being 

taken, if you just kind of go back to the history—and Senator Levin 

has done a good job of laying that out in the Pinochet account, 

50

1See Exhibit 21 which appears in the Appendix on page 336. 

changing names, apparently, as an effort to conceal, to hide from 

you at one point in time. The mere, kind of on a prima facie basis, 

the Equatorial Guinea accounts on the face of it—on the amounts 

of dollars involved, I would think, lack of compliance with kind of 

basic standards of legitimate-source money—just on the face of it, 

and dealing with, what, $750 million in assets from Equatorial 

Guinea. 

Ms. KELLY. If I could just clarify, the Equatorial Guinea information was developed in late 2003 and early 2004. The information 

we were dealing with at the time we had the initial discussions of 

the civil money penalty was based on the Saudi Arabian exam. 

Senator COLEMAN. When was the Equatorial Guinea, when was 

the knowledge of that account first coming to OCC? Was that January 2003? 

Ms. KELLY. Yes, questions were being raised about those accounts, but we hadn’t done our investigative——

Senator COLEMAN. And I do not know who to ask the question 

to. But the trouble is that you do not—again, this is not rocket 

science. You have a brutal dictator. You have a bad guy. And he 

has a ton of money in a bank in Washington, DC. And we know 

he is a bad guy and we know he has the money. What does it take 

for someone right away to say, we have a problem here, folks, and 

we expect you to correct it very quickly, and if you are not correcting it, we are going to do something very serious—or simply do 

it. 

Mr. STIPANO. Mr. Chairman, I think that’s correct. What I would 

add, though, is that we don’t advise banks what clients to take and 

what clients not to take. What we expect is that if a bank takes 

on a client, that they discharge their responsibilities under the law. 

They need to have a thorough application of a Know-Your-Customer program, and they need to identify and report suspicious 

transactions. That would have been the goal of our supervision, 

and that was what they were not doing with respect to Equatorial 

Guinea. 

Senator COLEMAN. Senator Levin. 

Senator LEVIN. Thank you, Mr. Chairman. 

I want to go back to Exhibit 21 again.1 First of all, let me add 

my thanks, Mr. Stipano, to you for your testimony, which is forthcoming, acknowledging mistakes and failures and shortcomings on 

the part of the OCC. I think it is very important that we start with 

that and acknowledge that. We want to try to find out why so that 

it will help reassure us—more importantly, the public—that this is 

going to be corrected. But nonetheless, your statements are helpful 

with the open acknowledgements. 

But Exhibit 21 is a series of E-mails between one of the examiners—and the Chairman made reference to this, a series of antimoney laundering exams—between those examiners and senior officials at the OCC. Now, the first E-mail was in March 2003. It presents a case for a more comprehensive evaluation of the operation 

and accounts of the bank. These are some of the evaluations of this 

bank:

51

Failure to disclose accounts to the OCC when requested 

to do so in at least two audit exams; 

Resistance by bank management to OCC efforts to obtain information on accounts, in one case denying the existence of and in another case failing to provide documents 

about the facilitation of highly suspicious cash transactions 

involving tens of millions of dollars; 

Issuing monetary instruments, such as cashiers checks, 

through suspense accounts, which served to hide the actual source of funds; 

Failure to fulfill commitments that Riggs made to correct previously identified anti-money laundering problems—and that seems to me to be a very important part 

of the history here, is how many previous warnings they 

had received from the OCC which had been ignored.

Now, Ms. Kelly, you said that they were promising or committing 

to do some things now in 2003, when you disagreed that there 

should be a civil monetary penalty. 

Ms. KELLY. We have a Washington Supervisory Review Committee that’s made up of representatives from across the Office. A 

case like this goes before that committee, and all points of view are 

put on the table and discussed. We have a very vigorous deliberative process. Going into that discussion, the supervisory office recommendation, which I supported, was that we didn’t feel a penalty 

was necessary. We wanted to pursue the cease and desist order, 

and we’d wait and see on the civil money penalty, depending on the 

success of their corrective efforts. 

Senator LEVIN. But there had been a long history here, had there 

not, of their violations? 

Ms. KELLY. I understand that. 

Senator LEVIN. Starting in 1998, we have OCC exams saying 

that the customer, Riggs, files were deficient, particularly in areas 

of customer identification and source of wealth. That is a 1998 

OCC report. We have an interim target memorandum under the 

Bank Secrecy Act in October 2000, that the documentation of the 

internal audit is inadequate; the customer profile information form, 

as required by bank policy, is poor; it is a repeat finding from prior 

examinations, as noted. Then you have a June 2002 exam saying 

information is sparse, KYC information on existing account relationships is not being updated. October, again of 2002, the antimoney laundering risk there is considered significant; we changed 

the bank’s overall quantity and aggregate compliance risk to high. 

I mean, there is a long history here. And yet when you get a recommendation that comes in from your own examiner basically saying to you, ‘‘If not now, when?’’—those are her words. What does 

it take? 

And then you have some kind of a matrix. Apparently you made 

reference to a matrix in your decision not to proceed with a civil 

monetary penalty. You said a referral is not necessary, according 

to a point score of 37 and the CMP matrix. 

Ms. KELLY. I’m sorry, what exhibit are we referring to now? 

Senator LEVIN. Well, it is an exhibit which—for the record, and 

there is some kind of confidentiality issue involved that you folks 

52

want us to maintain. So I am not going to be able to do any more 

than refer you to that document. 

Mr. STIPANO. Senator, could I attempt to shed some light on the 

matrix? 

Senator LEVIN. How does a matrix come up with, Hey, don’t do 

anything, when you have a 5-year history and you have all of this 

that we have discussed? 

Mr. STIPANO. Let me explain a little bit what the matrix is and 

what it is not, because I helped to create it. This is a shorthand 

tool for field examiners who are not normally privy to discussions 

among senior management in Washington as to the types of factors 

that we think are important in assessing a civil money penalty and 

the relative weights that those factors deserve. 

The matrix was not designed to address compliance violations, 

and it was definitely not designed to address BSA violations. It was 

really designed to address what I would regard as more run-of-themill banking violations that are often cited during exams, like lending-limit violations or violations of Regulation O dealing with insider abuse. Unfortunately our civil money penalty policy is not 

clear on that, and examiners will typically complete the matrix 

anyway. 

In my opinion, the value of that matrix in terms of its weight in 

this decision-making process is basically zero. I think the top-level 

score is $100,000. This was not the kind of case where that matrix 

really mattered. 

Senator LEVIN. I am just quoting from Ms. Kelly’s statement. Excuse me. Was it Mr. Miller? I am sorry, this was Mr. Miller’s document, not Ms. Kelly’s. Mr. Miller—and I made reference to you, 

and it was Mr. Miller’s statement in the exhibit that I was reading, 

that a CMP referral was not necessary according to a point score 

of 37. So that is where you are saying he should not have referred 

to that. 

Mr. Miller, do you want to defend yourself? 

Mr. MILLER. Yes, Senator. I thought we took a serious enforcement action by issuing a cease and desist order on the bank, which 

puts the bank on notice that if they violate it, they can get fined 

for that, too. So my thought was that we would ratchet it up and 

fine them if they did not comply with the cease and desist order. 

Riggs went from no formal enforcement action and no violations to 

my crew citing violations and the OCC placing them under a cease 

and desist order. If they did not comply, then my intent was to fine 

them. 

Senator LEVIN. The law, which has been on the books for some 

time, says that if the OCC determines that a bank has failed to establish and maintain anti-money laundering procedures and has 

failed to correct any problem with the procedures which was previously reported to the bank by the OCC, the agency shall issue a 

cease and desist order. It is not discretionary. It says ‘‘shall.’’ Is 

that correct? 

Ms. KELLY. Yes. 

Senator LEVIN. And yet, year after year, despite the fact, it 

seems to me, that these deficiencies were reported to the bank, the 

cease and desist order was not issued. 

53

Ms. KELLY. Because a violation of the Bank Secrecy Act wasn’t 

cited. Deficiencies were reported, but a violation wasn’t cited. 

Mr. STIPANO. Senator, I would be of the view that there were repeat criticisms, often in the same area, and I believe that 12 USC 

1818(s), which is the statute that you’re referencing, says what it 

means and means what it says. And ‘‘Shall’’ is ‘‘shall,’’ and there 

is no discretion. Had it been applied properly, we would have 

issued a cease and desist order much earlier than we did. 

Senator LEVIN. I see. OK, that is fine. Ms. Kelly, do you agree 

with that? 

Ms. KELLY. Yes, I do. 

Senator LEVIN. You just testified as to why a civil fine was not 

imposed earlier on Riggs. We heard from Mr. Noonan that he 

would have done it differently if he—looking back, he should have 

done it differently. Do you agree with that? 

Ms. KELLY. That he should have done it differently, or that I 

should have——

Senator LEVIN. That a civil——

Ms. KELLY. Civil money penalty? 

Senator LEVIN. That a CMP should have been imposed earlier? 

Ms. KELLY. I’d just like to explain the situation a little bit more. 

I came into my position in January 2003, just as the Saudi exam 

was beginning. So I was getting familiar with Riggs. We gave them 

the information about our findings, and they reacted very promptly. As I explained, my initial recommendation was that I didn’t feel 

a penalty was necessary on top of the enforcement action we were 

taking. However, after we went to the Washington SRC meeting 

and had a full discussion of this, the consensus view was that we 

should proceed with a referral to FinCEN and work with them on 

a penalty, and I fully supported that, as did the exam team. 

Senator LEVIN. Were you here for the testimony earlier this 

morning? 

Ms. KELLY. Yes. 

Senator LEVIN. You heard my introduction to the record of affidavits from examiners at the OCC indicating they were instructed by 

the examiner-in-charge not to put the record of the exam of 

Pinochet into your system. If that examination and its findings 

were part of the record, the database, it would have led, probably, 

to quicker action on the part of the OCC, but that did not happen 

because they were virtually lost. The bank was never even given 

a copy of that report, as I understand it. 

My question to you would be whether or not you are going to 

look into that conflict, which was very clear here this morning. 

Ms. KELLY. We have a complete review going on right now by an 

independent group within the OCC. 

Senator LEVIN. Including that issue as to whether or not there 

was a direction by Mr. Lee to the examiners not to put those documents into the database? Is that part of your investigation? 

Ms. KELLY. My understanding is they’re looking at every aspect 

of this. 

Senator LEVIN. Including that? 

Ms. KELLY. I will make sure they’re looking at that. 

Senator LEVIN. I think my time is up. Thank you, Mr. Chairman. 

54

1See Exhibit 28 which appears in the Appendix on page 373. 

Ms. KELLY. I’m sorry, did I answer the question? Was there more 

of the question, or——

Senator LEVIN. There may have been more, but my time is up. 

Ms. KELLY. OK. Sorry. 

Senator LEVIN. We will get back to it, thank you. 

Ms. KELLY. OK. 

Senator COLEMAN. Senator Fitzgerald. 

Senator FITZGERALD. Thank you. Thank you all for being here. 

I want to ask you a little bit about your ethics policies. I have 

been troubled that, while he seemed like a very nice man and 

seemed to have followed all of your ethics regulations as I understand them, that Ashley Lee was the examiner in charge of Riggs 

from roughly 1998 through 2002, and then he went to work for 

Riggs Bank following the exit exam from the June 2002 examination of Riggs? And as I understand it, that is permissible under the 

OCC’s internal regulations. In fact, you seem to contemplate—in 

Exhibit 28,1 there is an ethics bulletin board, and on page 2 of that 

they talk about what happens when an OCC examiner who is in 

charge of the loan review at a bank then goes to work for the bank 

as a loan officer or as a senior loan officer at the bank. 

Mr. Lee may not have been compromised in all the time that he 

was examining Riggs Bank and he may have followed every regulation, but it sure does not look very good. It seems like, if he was 

not over the line, he was tip-toeing right up to the line. And my 

question for Mr. Stipano is, should we not tighten those ethics regulations? And a person like Mr. Lee, with his experience, I am sure 

could find gainful employment from somebody other than a bank 

that he was examining. Mr. Stipano. 

Mr. STIPANO. Senator, this is an issue that troubles me and troubles the Comptroller and others at the very highest levels of the 

OCC. I know it is the Comptroller’s long-held view that an examiner ought not to be able to leave the bank one day as the examiner 

of the bank and then begin the next day as an employee of the 

same bank. The problem is that there is no legal bar to doing that 

presently. There is a Federal criminal statute—it is 18 USC 207—

which prohibits an examiner——

Senator FITZGERALD. It prohibits bribery. 

Mr. STIPANO. It would prohibit an examiner from appearing before the agency on a matter that was under their supervision while 

they were with the agency. It’s a 2-year ban. And we do have a policy that you have referenced, and the policy, actually, goes further 

than the statute, but it’s just a policy. The policy in essence requires someone who leaves the agency to not appear before the 

agency unless they’ve gotten clearance from their appropriate ethics official. I do believe this is an area that is worthy of more attention. It is getting attention at the highest levels of the agency. But 

there are some legal obstacles to accomplishing what you suggested. 

Senator FITZGERALD. You might need a change in statute——

Mr. STIPANO. Yes. 

Senator FITZGERALD [continuing]. That we could accomplish for 

you. We have been wrestling with this issue on a number of fronts. 

55

At the Defense Department there has been a recent issue where a 

woman in the Pentagon was negotiating with Boeing Corporation, 

their $20 billion-plus lease of jets, and all of a sudden she goes to 

work for Boeing. And apparently, because she went to work for a 

different division of Boeing than the one she was ready to give the 

$20 billion-plus lease to, it was OK, although Boeing removed her 

after their internal investigation found that. 

However, in the case of Riggs Bank, you still have your former 

examiner-in-charge there as an executive vice president, you have 

Mr. Hebert still in the bank, and he was sent several of these 

memos on—that show up in our exhibits statue about the accounts 

involving the various potential violations here. 

Now, the fact of the matter is the OCC did not really get tough 

on Riggs Bank until a new examiner-in-charge came in, and that 

was Mr. Miller. Is that not correct? That is when you started—the 

cease and desist was put in place under you? 

Mr. MILLER. Yes, Senator. 

Senator FITZGERALD. And you started to discover troubles almost 

immediately in 2003. Is that not correct? 

Mr. MILLER. Yes, the Saudi examination discovered serious Bank 

Secrecy Act issues. 

Senator FITZGERALD. And that led you to go into all embassy relationships, is that correct? 

Mr. MILLER. No, we did an overview of embassy banking, but it 

is very time and labor intensive to do transactional testing like we 

did on the Saudi accounts. We started that review in January, and 

by the end of January, we knew we had to regroup because of the 

serious problems we were uncovering. Some of these problems were 

potentially related to national security, and we certainly wanted to 

examine them fully. Therefore, we sent new request letters to the 

bank for more information, restaffed and resumed the exam in 

March. So, in other words, we could only handle that one relationship in detail at that time. 

Senator FITZGERALD. Have you done any criminal referrals as a 

result of your OCC examinations? 

Mr. STIPANO. Senator, there are legal restrictions on what we 

can say about that. What I can tell you is that law enforcement 

was promptly notified, and we worked very closely with law enforcement on this matter. 

Senator FITZGERALD. OK, there is an official form for a criminal 

referral, is there not? 

Mr. STIPANO. Yes, there is. 

Senator FITZGERALD. Right. Other than their potential violations 

of the BSA and the anti-money laundering laws, they have not had 

other problems in their loan department, at least not severe ones? 

What is the CAMEL rating of the bank? 

Mr. STIPANO. Senator, again, we’re under a legal restriction not 

to disclose that. 

Senator FITZGERALD. The CAMEL rating, would that not be publicly available? 

Mr. STIPANO. No. 

Senator FITZGERALD. OK. 

Mr. STIPANO. It would be non-public OCC information. 

56

Senator FITZGERALD. OK. Their examinations would be—their 

call reports would be available? 

Mr. STIPANO. Call reports, yes, sir. 

Senator FITZGERALD. OK. That is about it. So I cannot even ask 

you the CAMEL ratings of the banks. 

Mr. STIPANO. It impressed me, though, I must tell you, that you 

knew about that. [Laughter.] 

Senator FITZGERALD. Well, I want to thank you for being here. 

I would encourage you to think about your ethics guidelines. I am 

troubled by the appearance here of an examiner-in-charge being 

hired by the bank and then still being there. And the whole picture 

troubles me, and I think, at least going forward, the message at 

Riggs Bank should not be to tolerate anything that is right on the 

line or near the line. If they are anywhere close to the line, it 

should be ruled out of bounds, at least—certainly under the circumstances they are in now. 

And I thank the Chairman for doing this hearing and compliment the staff on the wonderful job they have done. 

Senator COLEMAN. Thank you, Senator Fitzgerald. 

Just a short follow-up. I know that Senator Levin has a couple 

of lines of inquiry. I just want to touch on a couple of things. 

Mr. Stipano, I understand that the OCC’s Bank Secrecy Act 

handbook does not contain supplemental material relating to the 

Patriot Act, although supplemental OCC bulletins have been provided to examiners. Do you feel examiners are up to speed and consistent in their communications to banks over the various requirements under the Patriot Act? 

Mr. STIPANO. Let me first talk about the procedures, because 

we’re getting there. We have interagency examination procedures 

that were last issued in 1997. They’re in need of updating. We hope 

to have that done on an interagency basis by the end of the year. 

And those procedures will be contained in our new handbook when 

they come out. 

With specific reference to the Patriot Act, we have completed 

exam procedures which we are presently using, even though they’re 

not in the handbook, for several key sections. Those are Sections 

313, 314, and 319(b). We also have draft procedures, which we 

haven’t finalized yet, for Sections 326 and 312. With Section 312, 

we’re awaiting the Treasury Department’s issuance of the final regulation, and when that comes out we will do whatever we need to 

do to finalize our procedures. But we’re using them even though 

they’re not in the handbook. 

As far as educating bankers, we’ve done an awful lot. I personally have done an awful lot. In 2002, I participated in a nationwide 

phone conference that had, I believe, about 5,000 listeners—bankers, compliance officers. The purpose of the phone conference was 

to educate them on the requirements of the Patriot Act. We participate in many conferences, interagency gatherings, and industry forums. This is a real priority for us. It’s sometimes an uphill fight 

because there’s an awful lot for the institutions to have to absorb. 

But this is something that we do, and I think it’s an area, frankly, 

where we’ve done well. 

Senator COLEMAN. But you indicate, though, that you are, then, 

still drafting, what is it, Sections 312 and 326? 

57

Mr. STIPANO. Do you mean the exam procedures or the reg? 

Senator COLEMAN. The exam procedures. 

Mr. STIPANO. The exam procedures for Sections 326 and 312 are 

drafted, and we are using them. We have not finalized them because we want to do it on an interagency basis. 

Senator COLEMAN. Are these the Know-Your-Customer? 

Mr. STIPANO. Section 326 is the Customer Identification Rule; 

Section 312 is the regulation that requires due diligence procedures 

for foreign correspondent and foreign private bank accounts. But 

we can’t finalize those exam procedures until there’s a final rule, 

and we don’t have control over that. 

Senator COLEMAN. The Patriot Act changed the landscape, clearly. I was kind of going back over the history: 1999, 140 votes in 

the House of Representatives to abolish suspicious activity reporting; I believe earlier, when the regs OCC proposed Know-Your-Customer regulations, about 350,000 comment letters filed against the 

proposal; Senator Levin may have filed the only one in support of 

the proposal. But we have come a long way. And I do not know if 

we have time to explore it here, but I would be interested if the 

Patriot Act needs to be enhanced, if there are things that we 

should be looking at now based on the experience that you have 

had. If any come to mind, I would appreciate knowing them. 

Mr. STIPANO. There’s nothing I can think of off the top of my 

head, but I believe that the Treasury Department has initiated a 

process, since we are several years out now, to review where we are 

with the Patriot Act—what’s working, what’s not working, what 

can be improved. And I think that we should encourage those kinds 

of efforts. 

Senator COLEMAN. I would appreciate that. 

Last question. It is clear, and we have been through this again 

and again, a long history of concerns, kind of back and forth, working with the bank, questions about whether they responded aggressively and enough over the course of time, ultimately a very significant civil money penalty. I am one who, I have been around in the 

government long enough to know when there is a problem, sometimes we overreact. Sometimes we then regulate in a way that gets 

unintended consequences. 

But we have a problem. Clearly, there was a problem here. Talk 

to me a little—I mean, are tough actions the only way that the 

OCC can get banks to comply? What is your common practice here, 

aside from Riggs? 

Mr. STIPANO. No. Let me talk a little bit about enforcement and 

supervision. We went back in preparation for these hearings and 

did a tally of how many formal enforcement actions we’ve taken 

since 1998, to pick a date. The number was 78. These are cease 

and desist orders or formal agreements or civil money penalties. 

And that’s a fairly large number. We have, in many cases, forced 

banks, often against their will, to improve their BSA compliance 

programs, and we’ve achieved a lot of success that way. There have 

been some cases, quite honestly, where banks have chosen to leave 

the national banking system because we insisted on them accepting 

an enforcement document if they were going to continue to be a national bank. 

58

1See Exhibit 27 which appears in the Appendix on page 370. 

But I don’t think that is the most effective way to get corrective 

action, and that’s not the way we normally do it. Normally what 

happens is that during the course of an examination if problems 

are discovered, they’re brought to management’s attention; a commitment to fix them is obtained; and then the examiner closely 

monitors what the bank does to make sure they follow through on 

the commitment. That’s the process that started with Riggs. 

What happened, though, was that we found the problems, we got 

the commitments, but the bank either was unable or unwilling to 

follow through on those commitments, and we gave them more opportunities. In general, it’s not efficient to chase after banks with 

cease and desist orders every time you find a problem. With most 

banks that are cooperative and capable, you can obtain a lot more 

in terms of corrective action just informally through the exam process. But once you reach a point where it becomes clear that management is not capable or is not cooperative, then you have to use 

enforcement. 

Senator COLEMAN. But there are, what, 1,700 national banks, 78 

formal actions. You said that is a large number in reference to 

what? 

Mr. STIPANO. There are about 2,100 national banks and about 

1,700 examiners. The 78 formal actions are based only on BSA in 

whole or in part. We’ve taken hundreds of other actions, including 

actions against individuals. Banks are ultimately run by individuals, and sometimes, the best way to change people’s behavior is 

not to assess the bank but to go after the individuals personally. 

And we do a good bit of that. 

Senator COLEMAN. And Mr. Stipano, I am one who—I do not 

want to handcuff your discretion to do what you think is the right 

thing to do to get compliance. I would just—it is not a question, 

just a comment—reiterate what I said at the very beginning, that 

these issues now are national security issues, that we deal in a 

world of grave concern about terrorist financing and the ability of 

people to use these institutions for destructive means. And so that 

clearly, with the Riggs situation, we are sitting up here saying we 

did not act—you did not act fast enough, did not act quick enough, 

did not do what needed to be done. We want to make sure that 

does not happen again. And making sure—again, I want to reiterate, I do not want to handcuff discretion, but we need some reassurance up here, the folks who are listening or watching, because 

that is—I am just going to lay it out there, have them kind of walk 

through this—it cannot happen again. 

Mr. STIPANO. Mr. Chairman, I couldn’t agree with you more. September 11 changed my world and changed our world in the regulatory agencies, just like it changed the world of every American. 

There is no issue that is more serious than this. There is no issue 

to which we’re more committed. What happened at Riggs is unacceptable; it cannot be repeated. 

Senator COLEMAN. Thank you. Senator Levin. 

Senator LEVIN. Thank you, Mr. Chairman. 

Mr. Stipano, Exhibit 27 is the OCC’s guide for current employees 

and it is pretty straightforward.1 On page 2 of the guidance, entiVerDate 0ct 09 2002 08:29 Oct 15, 2004 Jkt 095501 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 C:\DOCS\95501.TXT SAFFAIRS PsN: PHOGAN
59

1See Exhibit 57 which appears in the Appendix on page 903. 

tled Contacts With Former OCC Employees, it says that ‘‘when an 

OCC examiner goes to work for a bank where he or she served as 

an EIC’’—the examiner-in-charge—‘‘within the year preceding his 

or her departure from the OCC, the current EIC at the bank shall 

advise the former EIC that he or she will not be permitted to 

attend meetings with the OCC or otherwise communicate with or 

appear before the OCC for a period of 2 years following his or her 

departure, unless approval is granted in writing by the appropriate 

OCC ethics official prior to the meeting, communication, or appearance.’’

Now, that is a pretty clear restriction. Mr. Lee acknowledged or 

said it applied to him. I am not so sure how we enforce it against 

him after he leaves, but—we may have to change the law to do 

that.1 What we do not have to do is change your regulation to 

apply to your current employees. 

Mr. STIPANO. Senator, just to correct the record, it’s not a regulation. It’s just a policy. 

Senator LEVIN. Policy. Well, maybe it should be a regulation. In 

any event, we ought to strengthen it. 

Mr. Miller, you were in a situation where you were at a meeting, 

or meetings, I believe, with Mr. Lee—is that correct—after he left 

OCC? 

Mr. MILLER. Yes, Senator. 

Senator LEVIN. And he should not have been at those meetings 

under your policy. Is that correct? 

Mr. MILLER. Yes. You’re right. 

Senator LEVIN. And you should not have attended the meetings 

where he was at, under your policy. 

Mr. MILLER. Yes. 

Mr. STIPANO. Senator, I’m not sure that’s the proper interpretation of the policy. 

Senator LEVIN. OK. 

Mr. STIPANO. As we read it, the policy puts obligations on the examiner-in-charge who succeeds to the position after the previous 

one leaves. But it appears to put obligations on that examiner only 

at the time when the previous examiner leaves. And as far as we 

can tell, Mr. Miller complied with that. 

Mr. Lee got clearance from his ethics officer to be involved in certain types of activities, I think it was loan review. And Mr. Miller 

was very diligent in communicating what was in bounds and what 

was out of bounds to the whole examination crew. What happened 

is that down the road Mr. Lee got a new job. He became head of 

risk management. And he apparently did not get any additional 

clearance. We don’t read this policy as putting any obligations on 

Mr. Miller. If the examiner leaves and then somewhere down the 

line gets a new job, I don’t think that it’s really his obligation to 

keep track of what the former examiner does. 

Senator LEVIN. But if the issues that are discussed at the hearing or the meeting or in the communication are issues which that 

examiner previously had connection with, then it seems to me you 

should cut off contact with that former employee, should you not? 

60

Mr. STIPANO. I think that’s a prudent thing to do, but the legal 

obligation really runs to the former employee, not the current employee. 

Senator LEVIN. Well, except the former employee can thumb his 

nose at it. 

Mr. STIPANO. If he does that, then he’s running the risk of violating the law. 

Senator LEVIN. Violating a policy. 

Mr. STIPANO. Oh, no. Because if he’s——

Senator LEVIN. If he raises certain issues. 

Mr. STIPANO. Yes. 

Senator LEVIN. It is a very narrow law. The mere presence at a 

meeting, unless you can prove very specific, narrow subjects coming 

up, the mere presence at a meeting is not enough under that law. 

Mr. STIPANO. I’m not sure that’s true. I’m not the best expert on 

legal ethics, but I think there’s actually an Office of Government 

Ethics opinion that says that the mere presence could be enough. 

Senator LEVIN. All right, then it seems to me that the mere presence of your employee at such a meeting should be stopped. 

Mr. STIPANO. I think that——

Senator LEVIN. Once he knows. Well, Mr. Miller, let me ask you. 

Should you have continued to attend that meeting, or at least have 

notified Mr. Lee that he should not be raising and discussing subjects that he previously had connections with? Do you feel that you 

should have done that? 

Mr. MILLER. May I outline the process I put in place to try to 

ensure compliance? 

Senator LEVIN. Well, yes, but before you do that, can you answer 

my question? 

Mr. MILLER. I’m sorry, can you repeat it? 

Senator LEVIN. Should you have notified Mr. Lee at the meetings 

he was at that he should not be present raising and discussing subjects which were raised at that meeting? 

Mr. MILLER. In hindsight, yes, sir. 

Senator LEVIN. Just in terms of time, I do not want to cut you 

off, but the hour is late. And are policies in place now which would 

make sure that happens? Is that the bottom——

Mr. MILLER. The actual policy is being revisited at the highest 

levels of the OCC. 

Senator LEVIN. All right. I will leave it at that. Mr. Miller acknowledges that he should not have continued to be at that meeting, he should have notified Mr. Lee he cannot discuss those issues 

at that meeting. That is good enough for me, timewise, at the moment. And I appreciate your answer. You could give us those policies, when they are revised, to the Subcommittee. I think we would 

all appreciate that. 

In June 2003—June 21, Mr. Noonan, there was a meeting of 

OCC’s top enforcers at the Washington Supervisory Review Committee to consider enforcement action against various banks, and 

one of those was Riggs. Is that correct? 

Mr. NOONAN. June 21, 2003? 

Senator LEVIN. One. 

Mr. NOONAN. Two thousand and one. That would not have been 

the Washington Supervisory Review Committee. 

61

Senator LEVIN. District Supervision Review Committee, is 

that——

Mr. NOONAN. Right. 

Senator LEVIN. It is broader than Washington? 

Mr. NOONAN. No, it’s Northeastern District. 

Senator LEVIN. OK, narrower? 

Mr. NOONAN. Yes. 

Senator LEVIN. OK. Now, Mr. Lee was at that meeting, is that 

correct? 

Mr. NOONAN. He participated by telephone, as I did. 

Senator LEVIN. All right. And did he—according to these notes of 

that meeting, he ‘‘concluded that the deficiencies’’—the Riggs deficiencies—‘‘did not rise to the level of a violation of 12 CFR 2121.’’ 

Is that correct? 

Mr. NOONAN. That’s my recollection, yes, Senator. 

Senator LEVIN. Those are the notes of the meeting that say that? 

Mr. NOONAN. I believe so, yes, sir. 

Senator LEVIN. It seemed to me quite clearly he stated under 

oath today he did not recommend against enforcement action. But 

your recollection is that he did recommend——

Mr. NOONAN. My recollection is that he recommended that we 

did not need to do anything further except monitor them aggressively. 

Senator LEVIN. That is the same thing as recommending against 

enforcement action? 

Mr. NOONAN. In a—yes, I guess so. 

Senator LEVIN. Common sense? 

Mr. NOONAN. It’s not a double negative, so, yes. Common sense, 

yes. 

Senator LEVIN. My last question, there is just a clear conflict 

there which I assume will be part of your investigation as well? 

Mr. STIPANO. Yes. 

Senator LEVIN. You are shaking your head yes, for the reporter? 

The Patriot Act was enacted 3 years ago. One key anti-money 

laundering provision was the legal requirement that banks use due 

diligence when opening private banking accounts for foreign clients, especially senior foreign political figures, and those who are 

opening correspondent accounts for foreign financial institutions. 

Treasury issued proposed regs in May 2002. They attracted, as our 

Chairman mentioned, a lot of public comment. And then it issued 

an interim final rule in July 2002—2 years ago. Basically, the interim rule said a final rule would be issued in 2002, October. It has 

not been. OCC is part of Treasury. You are part of Treasury, I believe. 

Mr. STIPANO. We are a bureau within Treasury, but we’re independent, Senator. 

Senator LEVIN. You are what? 

Mr. STIPANO. We’re independent. This is a regulation where 

Treasury has the pen. They have afforded us opportunities to comment on the drafts of the rules, but that’s about it. 

Senator LEVIN. Have you inquired as to whether, when—not 

whether—when this final regulation will be issued? Do you have 

any information you can give us on that? 

62

Mr. STIPANO. My understanding is that they are very close to 

issuing a final regulation. 

Senator LEVIN. Do you know what the hold-up is? 

Mr. STIPANO. I really don’t. 

Senator LEVIN. I want to add my thanks to the Chairman’s for 

your presence here today, for your testimony. You have indicated 

that you are going to do better. We are going to be watching carefully to see if that happens in a number of areas, including these 

regulations, including revised examination procedures, and antimoney laundering assessments in annual reports on examinations 

that are given to banks. We ought to see to it that that assessment 

of the money laundering efforts of the bank are assessed and that 

they are part of the report. 

You know, there has been a suggestion that a new agency is 

needed, that the oversight be taken away from the OCC and given 

to a new agency whose sole mission is enforcing the anti-money 

laundering laws. I am not there yet, but I must tell you how you 

act in the next months, it seems to me, is going to affect a lot of 

people’s judgment on that issue. 

And I want to add my thanks. 

Senator COLEMAN. Thank you. This panel has been very candid, 

forthright, and very helpful. And for that we are very appreciative. 

The panel is excused. 

Mr. STIPANO. Thank you. 

Mr. MILLER. Thank you. 

Senator COLEMAN. I would like to welcome our final panel to today’s hearing, Andrew Swiger, the Executive Vice President of 

ExxonMobil Production Corporation; Albert J. Marchetti, the Vice 

President of International and Federal Relations at Amerada Hess 

Corporation; and finally, Steven Guidry, the Central Africa Business Unit leader at Marathon Oil Company. I appreciate all of you 

being here this morning and look forward to hearing your testimony. 

Again, as you are aware, pursuant to Rule 6, all witnesses who 

testify before this Subcommittee are required to be sworn. I would 

ask you all to now rise and raise your right hand. 

Do you swear that the testimony you give before this Subcommittee will be the truth, the whole truth, and nothing but the 

truth, so help you, God? 

Mr. SWIGER. I swear. 

Mr. MARCHETTI. I do. 

Mr. GUIDRY. I do. 

Senator COLEMAN. You will have an opportunity to have your entire statement be printed into the record in its entirety. We ask 

that you limit your oral testimony to no more than 5 minutes. You 

will see the yellow light go on at that point. Please conclude and, 

as I said, we will get the benefit of the full testimony. 

Mr. Swiger, we will have you go first, followed by Mr. Marchetti, 

and finish up with Mr. Guidry. And after we hear all the testimony, we will proceed to questions. 

Mr. Swiger, you may proceed. 

63

1The prepared statement of Mr. Swiger appears in the Appendix on page 115. 

TESTIMONY OF ANDREW P. SWIGER,1 EXECUTIVE VICE PRESIDENT, EXXONMOBIL PRODUCTION COMPANY, HOUSTON, 

TEXAS 

Mr. SWIGER. Mr. Chairman and Members of the Subcommittee, 

I am Andrew Swiger, and I am the Executive Vice President for 

ExxonMobil Production Company, a division of ExxonMobil Corporation. I have been with ExxonMobil for 26 years and have held 

a variety of managerial positions around the world. My current responsibilities include ExxonMobil’s global oil and gas production 

operations, including our subsidiaries in Africa. 

I’m pleased to have the opportunity to appear before the Subcommittee today to discuss our standards of business conduct and 

our operations in Equatorial Guinea. 

ExxonMobil has a rigorous formal system of corporate governance. It requires all of our employees to comply with all applicable 

laws and our company’s standard of business conduct. Compliance 

with the U.S. Foreign Corrupt Practices Act and the anti-corruption laws of other countries is an integral component of ExxonMobil’s strong control environment. Let me describe the key elements of this program. 

It begins with a clear statement and communication of our foundation policies through all levels of the business all over the globe. 

We have strong management controls for implementing the policies. There is management accountability for compliance at all levels. The program is supported by training of employees in ethics, 

including FCPA compliance. There is ongoing monitoring and enforcing policies through management controls and practices, internal and external audit functions, and the involvement of company 

lawyers, controllers, and other staff groups in business activities. 

And finally, where necessary, we take swift disciplinary action, up 

to and including termination, for noncompliance with company policies or applicable laws. 

Mr. Chairman, ExxonMobil is committed to being a good corporate citizen wherever we operate worldwide. We maintain the 

highest ethical standards, comply with all applicable laws and regulations, and respect local and national cultures. These principles 

and practices apply to our operations in Equatorial Guinea through 

both our subsidiaries there. 

We recognize, to be a good corporate citizen, we must also consider the impact of our business operations on the communities in 

which we operate. Our community activities include a focus on 

health, education, clean drinking water, upgrades to local health 

clinics and schools, and capacity building through training and apprenticeship programs. 

The practical realities of doing business in developing countries 

are challenging. Equatorial Guinea, like many developing nations, 

has a limited number of local businesses and a small population of 

educated citizens. As a result, there is a small community of government officials and business owners. Many businesses have some 

family relations with a government official. Virtually all government officials have some business interests of their own or through 

a close relative. In such countries it is sometimes necessary to do 

64

1The prepared statement of Mr. Marchetti appears in the Appendix on page 118. 

business with a government official or a close relative of a government official. But it is still expected that we do business ethically 

and comply with all U.S. and local laws. 

We believe that the government and the business community in 

Equatorial Guinea understand and respect the fact that we have 

explicit rules about how we conduct our business, and that we stick 

to them. In cases where we have disputes, we address these 

through established contractual and legal processes. 

With respect to transparency initiatives, ExxonMobil supports 

transparency initiatives that meet three standards. First, they 

must apply universally to all businesses seeking to operate in the 

country. Second, they must protect truly proprietary commercial information. And third, they must respect the sanctity of contracts 

and local laws. To that end, ExxonMobil has actively participated 

in the dialogue on the Extractive Industries Transparency Initiative sponsored by the U.K. Department of International Development. 

In conclusion, I believe ExxonMobil is widely known for its 

standards of business conduct, standards that are understood and 

practiced by employees, under management’s guidance, and reinforced by a formal governance system. ExxonMobil demands that 

every one of its employees, in all business dealings anywhere in the 

world, not only comply with the law, but also live by a strong creed 

of corporate ethics. This is not always easy or convenient, but it is 

the standard to which all ExxonMobil people are held. That is true 

in Equatorial Guinea and everywhere else in the world that 

ExxonMobil does business. 

Thank you, Mr. Chairman. I will be pleased to respond to the 

Subcommittee’s questions. 

Senator COLEMAN. Thank you very much, Mr. Swiger. Mr. Marchetti. 

TESTIMONY OF ALBERT J. MARCHETTI,1 VICE PRESIDENT, 

INTERNATIONAL AND FEDERAL RELATIONS, AMERADA 

HESS CORPORATION, NEW YORK, NEW YORK 

Mr. MARCHETTI. Thank you, Chairman Coleman, Senator Levin. 

My name is Al Marchetti, and I’m the Vice President of International and Federal Relations for Amerada Hess Corporation. 

Amerada Hess welcomes the opportunity to speak to the Congress 

today about important issues surrounding transparency in global 

trade and markets. 

Amerada Hess is a leading independent energy company engaged 

in the exploration and production of crude oil and gas around the 

world. Our operations are headquartered in New York, New Jersey, 

and Texas, and we employ over 9,000 people in this country alone. 

The company goes to considerable lengths to ensure ethical conduct of its business around the globe and full compliance with U.S. 

laws and the laws in the countries where we operate. Our policies 

in this regard are contained in the company’s Code of Business 

Conduct and Ethics, which all of our employees receive—in their 

native language, if necessary. Each of our employees is required to 

read this code and then sign an acknowledgement that he or she 

65

understands its contents. Amerada Hess recognizes that conducting 

business in an ethical fashion is not only the right thing to do, but 

is essential to our goal of becoming the partner, supplier, and 

neighbor of choice. 

With that introduction, let me turn to our business operations in 

Equatorial Guinea. Amerada Hess started business in Equatorial 

Guinea in mid-2001, when we purchased Triton Energy Ltd., including its assets in that country. Because I know that some of 

your questions may pertain to transactions or operations that predate our involvement in Equatorial Guinea, I want to emphasize 

that we only started doing business in that country 3 years ago. 

Most of the Triton employees who joined our company in 2001 no 

longer work for us, and as a result the company is understandably 

not in a position to address most of the Subcommittee’s questions 

regarding Triton’s business practices in Equatorial Guinea. 

Amerada Hess has interests in three blocks offshore Equatorial 

Guinea, and our rights and obligations in the country derive from 

production sharing contracts, or PSCs, with the government. Under 

these PSCs, we pay the Equatorial Guinean Government royalties 

on oil we sell as well as taxes on our profits. Until very recently, 

the E.G. government, exercising its power under those PSCs, expressly required that we make payments for oil revenues and taxes 

to accounts at the Riggs Bank in this country. I want to emphasize, 

however, that those payments were made to government accounts 

and not the personal accounts of government officials. To my 

knowledge, all of our payments under these PSCs were properly 

made to government accounts and were entirely legal and appropriate. 

Now let me turn to our company’s rigorous and extensive FCPA 

compliance process. As I mentioned earlier, all Amerada Hess employees must abide by the company’s code of conduct, which sets 

forth our policy respecting the FCPA. We also make available to 

our employees an international toll-free number and a Web site 

where they may report—anonymously, if they choose—any alleged 

breaches of FCPA policy directly to our internal audit and compliance department. 

Amerada Hess understands, however, that it is not sufficient to 

simply state a policy and hope that it’s followed. For that reason, 

we conduct a rolling program of educational seminars for all of our 

employees on the FCPA, and each of our major operational offices 

participates in that program at least once a year. In addition, the 

company’s internal auditors visit each of our non-U.S. offices at 

least once per year to audit compliance with the FCPA policy. 

Now, when we began doing business in Equatorial Guinea just 

3 years ago, we implemented this policy along with strong internal 

controls, which are designed to ensure that the business in that 

country complied with the law. For instance, any payment made by 

an Amerada Hess employee must be authorized initially by appropriate company management in Equatorial Guinea. However, our 

internal controls do not permit such payments to be made solely on 

the authority of employees in Equatorial Guinea. The proposed 

payments must also be sanctioned by higher management in Houston. 

66

1The prepared statement of Mr. Guidry appears in the Appendix on page 122. 

Amerada Hess understands the importance of doing business 

ethically and honestly, and, Mr. Chairman, we believe these policies and internal control procedures represent best practices in our 

industry. 

Finally, let me discuss briefly our company’s views on various 

privately sponsored and government-endorsed initiatives to improve transparency in global markets. Amerada Hess is a supporter 

of such initiatives, not only internally, but also as part of industrywide efforts. We are proud to be a member of the United Nations 

Global Compact, which brings companies together with U.N. agencies, labor, and civil society to support certain basic principles, including opposition to business corruption and bribes. The company 

also endorses the Extractive Industries Transparency Initiative, 

which aims to encourage best practices to publicize government 

revenues derived from extractive industries. 

Mr. Chairman, Senator Levin, Amerada Hess has been pleased 

to work cooperatively with the Subcommittee and its staff over the 

last several months to better understand the strengths of our current system and to identify opportunities for reasonable improvements. As you know, I have not been personally involved in the 

issues that are of interest to the Subcommittee, but I’ve been 

pleased to assist your staff in collecting information for your inquiry. And, Mr. Chairman, I’ll do my best to answer any questions 

that you may have or other Members may have. 

Thank you. 

Senator LEVIN [presiding]. Thank you, Mr. Marchetti. Mr. 

Guidry. 

TESTIMONY OF STEVEN P. GUIDRY,1 CENTRAL AFRICA BUSINESS UNIT LEADER, MARATHON OIL COMPANY, HOUSTON, 

TEXAS 

Mr. GUIDRY. Thank you, Senator Levin. I am Steven P. Guidry, 

Central Africa Business Unit Leader for Marathon Oil Company, 

and I am pleased to appear before the Subcommittee to review 

Marathon’s oil and gas activities in Equatorial Guinea. 

Marathon is a fully integrated oil and gas company focused on 

international growth. We’re headquartered in Houston, Texas, and 

are the fourth-largest U.S.-based integrated oil and gas company 

and the fifth-largest U.S. refiner and marketer. Marathon currently 

has operations in 28 States and nine countries, including Equatorial Guinea. 

Marathon established a core production area in Equatorial Guinea in January 2002, through the acquisition of CMS Energy’s interest in that country. Prior to January 2002, Marathon had no operations in Equatorial Guinea. This acquisition included an interest 

in the Alba Field and a 45 percent interest in the AMPCO methanol plant, which converts natural gas to methanol. In June 2002, 

the company strengthened its position through the acquisition of 

Globex Energy, bringing the company’s total working interest in 

the Alba Field to 63 percent. 

Shortly after establishing our presence in Equatorial Guinea in 

January 2002, we announced plans for the Phase 2A and Phase 2B 

67

expansion projects. Phase 2A will increase condensate production, 

which is similar to a light crude oil, from the Alba Field. Phase 2B 

will increase liquefied petroleum gas production. In addition, Marathon recently announced the final investment decision for Phase 3, 

our major liquefied natural gas project, LNG. These LNG shipments are primarily targeted for delivery to the United States, 

where LNG will be regasified and used to help alleviate growing 

natural gas supply shortages. 

As you are aware, the Gulf of Guinea is a major oil and gas supplier to the U.S. market, and Equatorial Guinea currently ranks as 

the third-largest producer in Sub-Saharan Africa. The region is 

poised to play an important role in the U.S. energy security in the 

years ahead as the United States tries to lessen its dependence on 

Middle East and North African producers. 

Marathon conducts its domestic and international operations in 

accordance with the highest ethical standards and principles. Our 

code of business conduct, anti-corruption compliance guidelines, 

and position on the Extractive Industries Transparency Initiative, 

which we’ve submitted for the record, illustrate our commitment to 

comply with the law and to conduct our business ethically. They 

also reinforce our values of trust, respect, dignity, and honesty, 

which we believe are the foundation of good business. Through our 

Business Integrity Office, Marathon has implemented an integrity 

help line, a valuable resource and platform for issue discussion and 

advice regarding ethics and behavior in the workplace, as well as 

a resource for reporting suspected illegal and unethical activity. 

We take compliance with the Foreign Corrupt Practices Act very 

seriously. The company has issued mandatory guidelines for FCPA 

compliance and other anti-corruption laws. Employees are surveyed 

on an annual basis regarding their awareness of and compliance 

with these guidelines. Annual, live anti-corruption training is required for the U.S.-based and international employees, including 

those in Equatorial Guinea. FCPA compliance is audited by Marathon on an annual basis. 

Marathon also takes very seriously our commitment to the citizens of every country in which we do business. We are pleased that 

the Government of Equatorial Guinea is working with multilateral 

institutions such as the United Nations Development Program and 

the International Monetary Fund to build an economic framework 

for future development. We would encourage the U.S. Government 

to do more to assist the Equatorial Guinean Government in its 

goals to build a prosperous future for its citizens. 

To assist in this effort, Marathon and our partners have invested 

millions of dollars in social programs to enhance the education and 

health of the citizens of Equatorial Guinea. For example, Marathon, our partners, and the Government of Equatorial Guinea are 

working together on a multimillion-dollar Roll Back Malaria initiative, that we hope will eliminate malaria transmission on Bioko Island within 5 years. We’re also investing heavily in educational initiatives for Equatoguinean students at home and abroad. Marathon 

and our partners manage a technical training center in Malabo for 

local citizens interested in working in our facilities, and have made 

donations of materials and supplies to schools and health centers. 

68

1See Exhibit 1g which appears in the Appendix on page 221. 

Our operations are the largest employer of Equatorial Guinea currently employing over 1,000 Equatoguineans. 

But we know our responsibilities do not stop there. Marathon 

has endorsed the Extractive Industries Transparency Initiative and 

is in the process of becoming a signatory to the Voluntary Principles on Security and Human Rights. In the recent press release, 

the Government of Equatorial Guinea also endorsed the Extractive 

Industries Transparency Initiative as well as the G8’s Initiative on 

Transparency and Good Governance. We would encourage the U.S. 

Government and the U.K. Government to work with Equatorial 

Guinea to promote progress in this area. 

In summary, Marathon is committed to playing a positive role as 

a responsible corporate citizen in the countries and communities in 

which we operate, and we seek government and non-government 

partners to share this commitment. This includes respecting local 

laws, strict adherence to the Foreign Corrupt Practices Act, strict 

adherence to health, environmental, and safety standards, conducting our business with honesty and integrity, and respecting the 

quality of life of those impacted by our operations. 

Thank you for this opportunity, Mr. Chairman. I would be 

pleased to answer any questions you might have. 

Senator LEVIN. Thank you, Mr. Guidry. 

First let me particularly thank Amerada Hess and Marathon for 

the full cooperation that you have extended to the Subcommittee 

during our investigation. We have asked for a lot of information on 

some matters which may not have been too pleasant, but you have 

responded fully and in a timely fashion. We appreciate it. 

ExxonMobil, I am afraid, has not been as forthcoming, to be perfectly straight with you, Mr. Swiger. And we will expect you to provide information that has been requested, just as your two colleagues there, two other companies, have on this panel. And I do 

not know if you are familiar with what you have given us or not 

given us, but we will expect the same information and cooperation 

to the same extent from ExxonMobil as we have received from the 

other two companies that are represented here today. And I want 

to give you an opportunity to respond, if you want. 

Mr. SWIGER. ExxonMobil takes the work of this Subcommittee 

extremely seriously. We have been involved in several conversations with the staff. We have responded on a number of occasions 

with detailed and thorough written submissions, as detailed and as 

thorough as they possibly can be. We are putting that same level 

of effort in the most recent request for data from the Subcommittee, which arrived on the eve of the 4th of July holiday. We 

expect to have that in to the Subcommittee very shortly. 

Senator LEVIN. Thank you. 

When our staff was reviewing the Riggs Bank documents, it 

came across a number of large payments which were made by a 

number of oil companies to Equatorial Guinea officials, family 

members, and entities controlled by them. There is also evidence 

of joint business ventures between some companies and individuals 

in Equatorial Guinea. If you take a look at Exhibit 1g,1 there is a 

chart listing a sample of these payments and business ventures. 

69

Mr. Swiger, let me perhaps start with you, about the Mobil Oil 

Guinea Ecuatorial, a marketing subsidiary of Exxon that conducts 

retail and wholesale distribution of petroleum products in Equatorial Guinea. You have, I think, told us that ExxonMobil owns 

about 85 percent of that company and that a 15 percent shareholder in that company is ‘‘Abayak’’—am I pronouncing that correctly? 

Mr. SWIGER. ‘‘AH-beyock.’’

Senator LEVIN. Abayak, which we understand is owned and controlled by the President of Equatorial Guinea. Is that your understanding as to who the ownership and controlling interest in 

Abayak is? 

Mr. SWIGER. It is the First Lady. 

Senator LEVIN. How much did Abayak initially pay for its 15 percent share? 

Mr. SWIGER. The initial capitalization of Mobil Oil Guinea 

Ecuatorial was approximately $15,000, $13,000 of which was contributed by ExxonMobil for its 85 percent share, and about $2,300 

by Abayak. 

It is a small marketing company. It supplies to industry, has a 

couple of retail outlets in the country. 

Senator LEVIN. All right. Did Abayak approach Exxon about this 

venture, or did Exxon initiate it? 

Mr. SWIGER. I’m not familiar with how it was initiated. 

Senator LEVIN. Are there any other technical assets that Abayak 

brought to that venture? 

Mr. SWIGER. I’m not aware of any. 

Senator LEVIN. Now, in Exxon’s guidebook on the Foreign Corrupt Practices Act, it lists a number of red flags in a transaction 

that suggest a need for greater scrutiny and for implementation of 

specific safeguards. Two of the listed red flags are the following: 

That the third party has a close personal or family relationship or 

a business relationship with a foreign official or a relative of a foreign official; and that the only qualification of the third party—that 

the third party brings to the venture is influence over foreign officials. 

Do they not exist here, those red flags, in that relationship? 

Mr. SWIGER. These red flags do exist in that relationship, but 

they—the business venture is a commercial venture. It is fully 

transparent and is recorded accurately in our books. 

Senator LEVIN. Mr. Guidry, your company has formed a business 

venture in E.G. with a company called GEOGAM. Is that the way 

to pronounce it, ‘‘geo-gam’’? 

Mr. GUIDRY. That is the correct pronunciation. 

Senator LEVIN. GEOGAM owns a 20 percent interest in a liquid 

petroleum gas facility which is owned 52 percent by Marathon. 

GEOGAM received, I think, $87,000 in dividends from this venture 

in 2002. GEOGAM has a 10 percent interest in a methanol plant, 

in which Marathon has a 45 percent interest, and they have received about $3 million from that operation. It is our understanding that, although GEOGAM is billed as a state-owned company, that the state actually owns 25 percent of it and that the 

President of Equatorial Guinea’s company, Abayak, owns the other 

70

75 percent of GEOGAM. So does Marathon know that GEOGAM is 

partially owned by Abayak? 

Mr. GUIDRY. Let me begin, Senator Levin, if I can, to clarify for 

the record. Marathon did not form any joint venture with 

GEOGAM. The relationship between GEOGAM and the facilities 

that exist in Equatorial Guinea was originally entered into by 

CMS, our predecessor. At the time that we purchased CMS Energy’s assets in Equatorial Guinea, it was clear to us that GEOGAM 

was a 100 percent—an entity owned 100 percent by the government. It wasn’t until the Summer of 2002 that it became, that 

there was some suggestion that perhaps GEOGAM was owned by 

a private interest. 

Senator LEVIN. That private interest being the president? 

Mr. GUIDRY. According to what is now an ex-employee of 

GEOGAM, yes. In conversation they mentioned that it was their 

understanding that GEOGAM was owned 75 percent by Abayak 

and 25 percent by the state. 

Senator LEVIN. Now, is that troubling to you, that you are in 

partnership with that president? 

Mr. GUIDRY. What that did for us is it triggered a red flag for 

us. And in accordance with our anti-corruption guidelines, we immediately then brought that to the attention of our attorneys and 

had that reviewed in detail and were able to establish that what 

we would do point forward is to treat GEOGAM as though it was 

in fact owned in part or in whole by a government official. And so 

we’ve conducted our operations and our dealings with GEOGAM 

under that assumption. 

Senator LEVIN. And how does that change the way in which you 

operate? 

Mr. GUIDRY. We just work to ensure that any business dealings 

that we have with GEOGAM are arm’s length, that in no way do 

we show any favor to GEOGAM than we would in any other circumstance. 

Senator LEVIN. Are you concerned about being a business partner, in effect, with this dictator? 

[Pause.] 

Mr. GUIDRY. We recognize that—and we’ve read the State Department reports and we recognize that—the reputation that exists. And we feel that our presence in the country, we think, does—

goes a great distance toward improving conditions in Equatorial 

Guinea. And we feel that, through our presence, we have—to the 

extent that we have influence, we think we can have a positive effect on the conditions that exist in Equatorial Guinea. 

Senator LEVIN. So that you have made a corporate decision that 

being a partner with somebody like this particular president, with 

all of the issues which you have heard about, including the use of 

oil revenues that are supposed to be the state’s for his own personal accounts, is something that you can—you are comfortable 

with? 

Mr. GUIDRY. I think in this circumstance what we’re comfortable 

with is the fact that we operate within all applicable laws and that, 

where we can influence circumstances in Equatorial Guinea, we’re 

going to work to improve civil society in Equatorial Guinea through 

our presence there. 

71

Senator LEVIN. Is that the only way you can be in the country, 

is being a partner with him? 

Mr. GUIDRY. I don’t think——

Senator LEVIN. Is that a condition of your being present in the 

country? 

Mr. GUIDRY. Of Marathon’s presence? 

Senator LEVIN. Yes. 

Mr. GUIDRY. No, it was not a condition of us entering into Equatorial Guinea. 

Senator LEVIN. Is it a condition of your entering into Equatorial 

Guinea, Mr. Swiger? 

Mr. SWIGER. It is not, Senator. 

Senator LEVIN. Does it trouble you that you have a business 

partner like this dictator? 

Mr. SWIGER. Business arrangements we have entered into have 

been entirely commercial, have been at market-based rates, arm’s 

length transactions, fully recorded on our books. They are a function of completing the work that we’re there to do, which is to develop the country’s petroleum resources and, through that and our 

work in the community, make Equatorial Guinea a better place. 

Senator LEVIN. Make it what? 

Mr. SWIGER. A better place. 

Senator LEVIN. Do you know the total number of dividends, by 

the way, which Abayak has been paid by that company that you 

are a partner? 

Mr. SWIGER. The dividend total for the shareholders over the 

past 6 years is slightly over $200,000. Abayak’s share is $32,000, 

I believe. 

Senator LEVIN. That is for a $2,300 investment? 

Mr. SWIGER. The initial investment of $2,300 and of course 

$13,000 for ExxonMobil. 

Senator LEVIN. You say ‘‘initial investment’’; was there a subsequent investment? 

Mr. SWIGER. That includes the initial investment and a subsequent cash call. 

Senator LEVIN. How much was that? 

Mr. SWIGER. I do not know the split between the two. 

Senator LEVIN. OK. Was it a condition of—you are saying that 

you entered into a partnership agreement, basically, with Abayak 

without it being required? Part of the deal? 

Mr. SWIGER. I do not know the initial formation details for that 

venture. 

Senator LEVIN. So it may have been a condition? 

Mr. SWIGER. I do not know the details. 

Senator LEVIN. OK. Mr.—is it ‘‘marketti’’ or ‘‘marshetti’’? I am 

sorry. 

Mr. MARCHETTI. ‘‘Marketti.’’

Senator LEVIN. ‘‘Marketti.’’ You have also had a business relationship with some of the family of the E.G. president, apparently 

a 14-year-old—is that a son or a cousin or—who owns the lease, or 

who has a lease with you? 

Mr. MARCHETTI. I’m familiar with the lease you’re speaking 

about, sir——

Senator LEVIN. You say you are? 

72

Mr. MARCHETTI. I am familiar with the lease. 

Senator LEVIN. It was a Triton lease? 

Mr. MARCHETTI. That was a Triton lease and predates our acquisition of the company. What we do know from looking at the 

records is that particular piece of real estate’s title was held in the 

name of the president’s son, and he was represented by his mother 

in the negotiations. But that’s the extent of our knowledge of it, 

Senator. 

Senator LEVIN. Were you there when a court ordered the stopping of those payments? Was it Hess that was there at that time, 

or was that Triton? 

Mr. MARCHETTI. I’m not sure which company was there when it 

happened. Apparently there was a dispute over ultimate ownership 

of the property and which was eventually resolved. 

Senator LEVIN. One of the issues which has come up is how 

much of the student payments which are made by the oil companies, payments for tuition, room, board, stipends, travel expenses 

to the United States and so forth have gone to the family of the 

officials of Equatorial Guinea, children of both the high-ranking officials and of their relatives. 

Mr. Guidry, at least a few of the students that you have been 

funding are related to the president, that Marathon’s been funding? 

Is that accurate? 

Mr. GUIDRY. That still remains an uncertainty. Based on our investigation of that issue during 2003, we concluded that, through 

our investigation, that there was enough evidence suggesting they 

might be, that we terminated that support. 

Senator LEVIN. Were you able to get a straight answer on the 

question of whether the students were related to the president or 

not? 

Mr. GUIDRY. No, we were not. 

Senator LEVIN. Mr. Marchetti, relative to Hess payments for support of students studying in the United States or Canada, do you 

know how many of those students were related to high-ranking 

E.G. officials? 

Mr. MARCHETTI. No, Senator, I don’t. The payments that we 

make to support the education of Equatoguinean citizens are done 

pursuant to our production sharing contract obligations, and we, effectively, pay those and don’t really have anything to do with 

where that money is spent and who it’s spent on. 

Senator LEVIN. Have you inquired as to how much of payments 

you are making go to students who are the relatives of the highranking officials? 

Mr. MARCHETTI. To my knowledge, Senator, I don’t know. 

Senator LEVIN. Well, that is not my question. I know you do not 

know, but have you made an inquiry about that? 

Mr. MARCHETTI. I don’t know if we’ve made inquiries, is what I’m 

saying. 

Senator LEVIN. Oh, I see. OK. 

I think this is a very troubling issue. You have all indicated, I 

think, all of you, that you support greater transparency. When it 

comes to Equatorial Guinea, there sure is not much, to put it mildly. I mean, our own State Department has made it clear that we 

do not have transparency in that country. So you are now in a situVerDate 0ct 09 2002 08:29 Oct 15, 2004 Jkt 095501 PO 00000 Frm 00086 Fmt 6633 Sfmt 6633 C:\DOCS\95501.TXT SAFFAIRS PsN: PHOGAN
73

ation where you are basically in partnership with either the dictator or his family. And it seems to me that, as Americans, we have 

to be troubled by that. 

I understand what you are saying about business, and I understand your hopes that maybe somehow or other that your presence 

there will benefit the people. But according to these State Department reports, it is not the people that are benefiting from the oil 

revenue. And that ought to trouble our oil companies. I do not 

think you are going to be able to satisfy yourself and rationalize 

your presence based on the benefits to the people of a povertystricken country that, according to our State Department, are not 

the beneficiaries of the oil, but rather most of it goes into the pockets of a dictator. 

So in terms of transparency, you all say you support the international efforts to get greater transparency. We would ask that you 

report to us, if you would, on your efforts as individual companies 

to support the transparency efforts in the international community. 

It may be the only hope we have other than self-control and deciding that we are just not going to do business with dictators. 

You know, we are very, very critical, and rightly so, of people 

who did business with Saddam Hussein. And it seems to me it is 

proper. When you have human rights violations to the extent that 

they existed in Iraq, we had sanctions, embargoes; we told our companies they could not deal with him. We have a dictator here who 

is, according to the reports that you can read and I can read, with 

the State Department, someone who is a human rights violator and 

who runs a country as though it is his own private fiefdom. And 

that is something which, until either international or domestic laws 

are changed, you are going to have to deal with both in terms of 

your conscience and in terms of your business needs. 

I know you are all in a competitive business and other companies 

do it; maybe you are going to do it, too. But I have to tell you, I 

do not see any fundamental difference between dealing with an 

Obiang and dealing with a Saddam Hussein. They are both dictators, they are both human rights violators. 

We would ask you to give us the information that we are waiting 

for, in the case of ExxonMobil, and that all three of your companies 

seriously support the efforts that maybe may do a little good in 

terms of transparency—we are all for them—and that you would 

just let this Subcommittee know what actions you take, since you 

all indicate support for those efforts, what actions you in fact take 

to support those efforts. 

With that, unless any of you want to add a comment, we will 

stand adjourned. 

[Whereupon, at 1:19 p.m., the hearing was adjourned.] 

(75)

A P P E N D I X 

PREPARED STATEMENT OF SENATOR RICHARD SHELBY 

Mr. Chairman, I commend you for holding this hearing on the effectiveness of the 

Federal regulatory system in enforcing this Nation’s laws against money laundering. 

As you know, the Committee on Banking, Housing and Urban Development, which 

I chair, has held a number of hearings on this topic, including a June 3, 2004 hearing that focused on Riggs Bank. In the course of these hearings, it has become apparent that serious systemic problems underlie the repeated failure of Federal regulatory agencies to detect violations of the Bank Secrecy Act and other anti-money 

laundering statutes, and to vigorously enforce those laws when violations are finally 

uncovered. Clearly, corrective actions are warranted. 

The issues of BSA enforcement and terrorist financing are not trivial sideshows 

in the war on terrorism. They are central to the goal of winning that war as soon 

as possible in order to avert the truly catastrophic terrorist attack we all fear may 

be on the horizon. Soon after the terrorist attacks of September 11, 2001, President 

Bush announced his signing of Executive Order 13224, which freezes the financial 

assets of terrorists and their supporters, and denies them use of the U.S. financial 

system. In so doing, he vowed to ‘‘starve the terrorists,’’ stating that ‘‘money is the 

life-blood of terrorist operations.’’ That would seem to make compliance with and enforcement of anti-money laundering and related laws a very high priority. Unfortunately, the Riggs case, the subject of today’s hearing, indicates that is not always 

the result. 

More than 6 years passed after the first detection of Riggs’ failure to comply with 

the Bank Secrecy Act until the imposition of record fines for that pattern of noncompliance. Even in the wake of the September 11 terrorist attacks, there was a 

noticeable lack of urgency both in how Riggs conducted business and in how its Federal overseer performed its mission. Comptroller of the Currency Hawke has stated 

flatly that Riggs constituted a failure of supervision by his agency. That acknowledgment of failure on the part of the Office of the Comptroller of the Currency is 

a start. It will not be enough, however, if Riggs is treated like an anomaly. Additional examples of lax compliance and supervision have emerged that indicate a 

wider problem, and failure to adopt a systemic approach will most certainly lead to 

failure in the war on terrorism. 

But this hearing is about not just money laundering. It is about the nexus between money laundering and foreign corruption. The Asian financial crisis of 1997 

taught us the enormous economic, social and political ramifications of failing to address foreign corruption. That the so-called ‘‘Asian flu’’ did not, in the end, seriously 

affect the economy of the United States is a testament to the size and resilience of 

our economy. The savings-and-loan, mutual fund and accounting scandals that have 

occurred, however, leave little doubt that the ramifications of such occurrences can 

be significant. Without transparency and integrity in the financial systems of developed and developing countries alike, the economic foundation upon which global stability, such as it is, rests will surely falter. Money laundering and related financial 

crimes can weaken a financial system. When such activities occur within the context 

of a corrupt economic and/or political system, the results can be devastating. 

Mr. Chairman, I again commend you for holding this hearing, and look forward 

to the testimony of the witnesses.

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Æ


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