    [Senate Hearing 108-633]
    [From the U.S. Government Publishing Office]

                                                            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

                    MONEY LAUNDERING AND FOREIGN CORRUPTION:

                ENFORCEMENT AND EFFECTIVENESS OF THE PATRIOT ACT

                                                            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

                        U.S. GOVERNMENT PRINTING OFFICE
    95-501                      WASHINGTON : 2004
    ____________________________________________________________________________
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800
    Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

                       COMMITTEE ON GOVERNMENTAL AFFAIRS

                       SUSAN M. COLLINS, Maine, Chairman
    TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
    GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
    NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
    ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
    ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
    PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
    JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
    RICHARD C. SHELBY, Alabama           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                  CARL LEVIN, Michigan
    GEORGE V. VOINOVICH, Ohio            DANIEL K. AKAKA, Hawaii
    ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
    ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
    PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
    JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
    RICHARD C. SHELBY, Alabama           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

                                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
    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

        --GPinochet 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

    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

    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

    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: GFootnotes 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).....     *

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

    Footnote No. 87, See Attachment and Footnote No. 65 (abov1082, 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

    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

    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 (above1517-1531, 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

    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)...     *

    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 anti-money laundering provisions
    contained in Title III of the USA Patriot Act. Again I commend
    Senator Levin for continuing to address this important issue.
        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 anti-money 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 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.
        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 anti-money 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 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 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 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 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
    anti-money 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
    one-year 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.
        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.
        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.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Riggs Bank, N.A. appears in the
    Appendix on page 76.
    ---------------------------------------------------------------------------
        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 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.
        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.''
    ---------------------------------------------------------------------------
        \1\ See Exhibit 37 which appears in the Appendix on page 422.
    ---------------------------------------------------------------------------
        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
    government'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.''
    ---------------------------------------------------------------------------
        \1\ See Exhibit 12 which appears in the Appendix on page 297.
    ---------------------------------------------------------------------------
        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.
        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.
    ---------------------------------------------------------------------------
        \1\ See Exhibit 1b which appears in the Appendix on page 213.
    ---------------------------------------------------------------------------
        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 anti-money laundering
    regulations.
    ---------------------------------------------------------------------------
        \2\ See Exhibit 1c and 1d which appear in the Appendix on pages 214
    and 215.
    ---------------------------------------------------------------------------
        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 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 Know-Your-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 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 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.
        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 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.
    ---------------------------------------------------------------------------
        \1\ See Exhibit 7b which appears in the Appendix on page 260.
    ---------------------------------------------------------------------------
        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.
        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?
    ---------------------------------------------------------------------------
        \1\ See Exhibit 48a which appears in the Appendix on page 487.
    ---------------------------------------------------------------------------
        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.
    ---------------------------------------------------------------------------
        \2\ See Exhibit 7b which appears in the Appendix on page 260.
    ---------------------------------------------------------------------------
        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?
        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?
    ---------------------------------------------------------------------------
        \1\ See Exhibit 48b which appears in the Appendix on page 490.
    ---------------------------------------------------------------------------
        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?
        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?
    ---------------------------------------------------------------------------
        \1\ See Exhibit 7b which appears in the Appendix on page 260.
        \2\ See Exhibit 7c which appears in the Appendix on page 261.
    ---------------------------------------------------------------------------
        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?
        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.
    ---------------------------------------------------------------------------
        \1\ See Exhibit 7b which appears in the Appendix on page 260.
    ---------------------------------------------------------------------------
        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 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 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 E-mail: ``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?''
    ---------------------------------------------------------------------------
        \1\ See Exhibit 7d which appears in the Appendix on page 262.
    ---------------------------------------------------------------------------
        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.
        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.''
    ---------------------------------------------------------------------------
        \1\ See Exhibit 28 which appears in the Appendix on page 373.
    ---------------------------------------------------------------------------
        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.
        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 knowledge, through
    proper and due diligence have accumulated their wealth through
    legitimate and honorable means.
    ---------------------------------------------------------------------------
        \1\ See Exhibit 37 which appears in the Appendix on page 422.
    ---------------------------------------------------------------------------
        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 Know-Your-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?
        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?
    ---------------------------------------------------------------------------
        \1\ See Exhibit 8 which appears in the Appendix on page 263.
    ---------------------------------------------------------------------------
        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?
        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 formulate 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 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.''
    ---------------------------------------------------------------------------
        \1\ See Exhibit 39 which appears in the Appendix on page 454.
    ---------------------------------------------------------------------------
        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 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-
    to-day 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?
        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.
        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 anti-money laundering laws?
        Mr. Lee. I do not remember ever having violations of the
    anti-money 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.
        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?
        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 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.
        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.''
    ---------------------------------------------------------------------------
        \1\ See Exhibit 7a which appears in the Appendix on page 259.
    ---------------------------------------------------------------------------
        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, 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.''
    ---------------------------------------------------------------------------
        \1\ See Exhibit 49 which appears in the Appendix on page 493.
    ---------------------------------------------------------------------------
        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\
    ---------------------------------------------------------------------------
        \2\ See Exhibit 12 which appears in the Appendix on page 297.
    ---------------------------------------------------------------------------
        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.
        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 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.
        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.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of the Office of the Comptroller of the
    Currency appears in the Appendix on page 86.
    ---------------------------------------------------------------------------
        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 anti-money 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 enforcement 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 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 policy 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.
        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?
        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\
    ---------------------------------------------------------------------------
        \1\ See Exhibit 21 which appears in the Appendix on page 336.
    ---------------------------------------------------------------------------
        ``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 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, 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.
    ---------------------------------------------------------------------------
        \1\ See Exhibit 21 which appears in the Appendix on page 336.
    ---------------------------------------------------------------------------
        But Exhibit 21 is a series of E-mails between one of the
    examiners--and the Chairman made reference to this, a series of
    anti-money 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:

              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 anti-money 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 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-the-mill 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.
        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.
        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.
    ---------------------------------------------------------------------------
        \1\ See Exhibit 28 which appears in the Appendix on page 373.
    ---------------------------------------------------------------------------
        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. 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.
        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?
        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.
        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, entitled 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.''
    ---------------------------------------------------------------------------
        \1\ See Exhibit 27 which appears in the Appendix on page 370.
    ---------------------------------------------------------------------------
        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.
    ---------------------------------------------------------------------------
        \1\ See Exhibit 57 which appears in the Appendix on page 903.
    ---------------------------------------------------------------------------
        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?
        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.
        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?
        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 anti-money 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.

      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.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Swiger appears in the Appendix on
    page 115.
    ---------------------------------------------------------------------------
        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
    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.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Marchetti appears in the Appendix
    on page 118.
    ---------------------------------------------------------------------------
        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 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.
        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 industry-wide 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.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Guidry appears in the Appendix on
    page 122.
    ---------------------------------------------------------------------------
        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 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. 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.
    ---------------------------------------------------------------------------
        \1\ See Exhibit 1g which appears in the Appendix on page 221.
    ---------------------------------------------------------------------------
        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 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.
        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?
        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
    high-ranking 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 situation 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 poverty-stricken 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.]

                                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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