RTFA: http://archives.econ.utah.edu/archives/marxism/200…

Riggs Is Set to Plead Guilty to Crime
Fine Could Hit $18 Million
In Money-Laundering Case;
PNC Deal’s Fate Is Unclear

By JOHN R. WILKE and MITCHELL PACELLE
Staff Reporters of THE WALL STREET JOURNAL
January 26, 2005

WASHINGTON - Riggs Bank N.A., whose international dealings
helped trigger a federal crackdown on money laundering by
U.S. financial institutions, is expected to plead guilty to
a criminal charge arising from its services for foreign
embassies and wealthy clients, including former Chilean
dictator Augusto Pinochet.

The Riggs board has been presented with a plea agreement by
prosecutors in which the bank would admit to one count of
violating the Bank Secrecy Act by failing to file reports
to regulators on suspicious transfers and withdrawals by
clients, people close to the case said.

Directors are expected to accept the plea and the bank
would pay a fine of between $16 million and $18 million.
The deal could be announced as soon as tomorrow, these
people said.

As details of the bank’s problems emerged, Riggs, a storied
Washington institution whose headquarters across the street
from the U.S. Treasury were once pictured on $10 bills,
became emblematic of lax compliance with money-laundering
laws and weak board oversight.

The case sparked a campaign by prosecutors and bank
regulators to enforce money-laundering provisions of the
2001 Patriot Act that are designed to prevent terrorists
and other criminals from infiltrating the U.S. financial
system. Federal prosecutors and regulators have been
aggressively investigating other banks since the Riggs
scandal emerged last year, probing more than a half-dozen
major banks for money-laundering violations.

Most recently, Banco de Chile disclosed that the Office of
the Comptroller of the Currency and the Federal Reserve
Bank of Atlanta are conducting targeted examinations
involving two of the company’s U.S. branches. The OCC is
looking into Banco de Chile’s New York branch to determine
the bank’s compliance with the U.S. Bank Secrecy Act and
anti-money-laundering requirements regarding certain
accounts, the company said in a regulatory filing.

For decades, Riggs bank cultivated close ties to the
government, including custody of accounts for the Central
Intelligence Agency, The Wall Street Journal reported last
month. The CIA-Riggs relationship allegedly stretches back
at least to the Cuban Bay of Pigs affair in the 1960s,
according to intelligence historian Thomas Powers.

After its alleged international money-laundering violations
surfaced last year, the bank’s directors moved to close its
embassy-banking division, and its holding company, Riggs
National Corp., agreed to a buyout by PNC Financial Corp.
of Pittsburgh for $321 million in cash and 7.5 million
shares of PNC stock, valuing the deal at $779 million at
the time it was announced.

The deal has been in doubt with the criminal probe under
way, however. An agreement with the Justice Department
could clear the way for it to proceed, but could also give
PNC a right to renegotiate the price or terms, under a
“material adverse change” clause in the sale contract.

A spokesman for Riggs declined to comment yesterday. Under
the contract, which was drawn up with the scandal still
unfolding last July, PNC can walk away from the deal under
certain circumstances, including “material regulatory
impairments.”

It isn’t clear if PNC, drawn by Riggs’s 51 retail bank
branches in the lucrative Washington market, will drop the
deal. But it could seek to negotiate a lower price to
compensate for the latest fine, further damage to the
franchise and massive lawyers’ fees.

A spokesman for PNC declined to comment on whether it would
invoke the clause in the event of a guilty plea.

In December, PNC Chairman and Chief Executive Officer James
Rohr told investors: “If they can’t make a representation
that the legal burden that they have, or the regulatory
burden that they have, is the same as it was when we
entered into the transaction, then we don’t have to go
through with the transaction.”

But Stephen Fraidin, a mergers and acquisitions lawyer for
Kirkland & Ellis, said it could be difficult to get out of
a deal because of a material-adverse-change clause. “And if
the buyer renegotiates the price down, it’s likely the
shareholders of the target will sue,” potentially imposing
added costs.

Riggs also faces heightened civil liability in the wake of
the criminal plea. Several shareholder suits are pending,
as well as a charge from a Spanish court alleging that
Riggs violated a 1999 freeze order imposed on Mr.
Pinochet’s assets. The cases could cost the bank several
million dollars more, and may have to be settled before the
PNC deal can go through.

Riggs last year paid a $25 million fine to federal banking
regulators imposed in connection with money-laundering
violations, and its chairman, Joe L. Allbritton, stepped
aside as well. The Allbritton family remains a major
shareholder and owns broadcasting and other interests in
Washington.

Separate criminal investigations of individual former bank
officers are continuing, those close to the case said.
These inquiries are focused on alleged kickbacks, fraud or
money laundering involving dealings with international bank
clients ranging from Equatorial Guinea to Saudi Arabia.