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Thursday, January 27, 2005

Bank pleads guilty of violating AML laws

Riggs Bank plead guilty to violating the Anti-Money Laundering laws of the Bank Secrecy Act, clearing the way for PNC Financial to acquire Riggs.

Story in the Washington Business Journal.

Riggs Press Release:

Under an agreement with the U.S. Department of Justice and the U.S. Attorney's Office for the District of Columbia:

Riggs Bank N.A. will plead guilty to a single count of failing to file timely and/or accurate Suspicious Activity Reports as required by the Bank Secrecy Act and its implementing regulations. Riggs Bank N.A. will pay a $16 million fine to federal authorities, and has agreed to a five-year period of corporate probation, which will terminate immediately upon the closing of a sale of Riggs National Corporation or Riggs Bank N.A. or any other change of control transaction.

U.S. Attorney for the District of Columbia Press Release:

The guilty plea is in connection with Riggs' repeated and systemic failure accurately to report suspicious monetary transactions associated with bank accounts owned and controlled by Augusto Pinochet of Chile and by the government of Equatorial Guinea. ...

United States Attorney [Kenneth L.] Wainstein stated, "Riggs Bank was legally obligated to take steps to ensure that its services would not be used for illegal purposes. Despite numerous warnings from regulators, Riggs courted customers who were a high risk for money laundering and helped them shield their financial transactions from scrutiny. This long-term and systemic misconduct was more than simply blind neglect; it was a criminal breach of the banking laws that protect our financial system from exploitation by terrorists, narcotics dealers and other criminals. We welcome the bank's decision to accept responsibility, to implement internal processes to prevent future such violations, and to cooperate fully with our ongoing investigation."

"The sound business practice of ‘knowing your customers' (PDF) applies particularly to banks and financial institutions, which have an obligation under the law to report suspicious financial transactions that indicate evidence of money laundering or other illegal activity," said Assistant Attorney General Wray. "Such scrutiny is especially important where the customer is a high-profile foreign political figure. U.S. financial institutions must not serve as havens for funds looted from foreign countries, and institutions with weak compliance programs must not be rewarded for their lack of vigilance."

Note the broad use of the phrase "know your customer" by US Attorney Wainstein. In the press release he's talking about knowing your customers in general, as a good business practice for AML compliance. Given the facts surrounding the case, he does not appear to be referring to Section 326 of the Patriot Act.

Here's something from the Federal Reserve Bank of Philadelphia: Know Your Customer: It's Not Just a Good Idea, It's the Law!

Section 326 of the PATRIOT Act [Verification of Identification—more commonly referred to as "Know Your Customer"] requires each financial institution-including banks, savings associations, and credit unions-to have a Customer Identification Program (CIP) that describes processes the financial institution will follow to (i) verify the identity of new accountholders, (ii) ensure that the institution has a reasonable belief that it knows each customer's identity, and (iii) compare the names of new customers against government lists of known or suspected terrorists or terrorist organizations.


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