[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) 512ï¿½091800  
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                   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.
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    \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.''
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    \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.
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    \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.
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    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.
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    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.
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    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.
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    \1\ See Exhibit 1g which appears in the Appendix on page 221.
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    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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