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CONTENTS:

NEWS HIGHLIGHTS OF THE WEEK:

1. World
2. Africa
3. Americas
4. Asia Pacific
5. Europe
6. Middle East
7. South Asia
8. Cyberterrorism and Information Warfare
9. Finance
10 Human Rights
11. Law and Legal Issues
12. Transportation
13. Weapons of Mass Destruction
14. Recently Published

FEATURE ARTICLE:
Equatorial Guinea, Saudi Arabia, and Riggs Bank

NEWS HIGHLIGHTS OF THE WEEK

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1. World

Officials from North Korea, South Korea, the US, China, Russia and Japan have begun low level working group meetings regarding North Korea's nuclear program in preparation for a third round of talks due to be held in China in June.

The World Health Organization reports that long-term economic and social costs of HIV/AIDS have been seriously underestimated and that the world has reached a crucial moment in the history of the pandemic. More than 20 million people have died of AIDS, which is now the leading cause of death and lost years of productive life for adults 15 to 59 years old and some 34 million - 46 million people are infected. Based on current trends, the pandemic could cause poorer countries to lose so many people that they collapse, but a comprehensive strategy linking prevention, treatment, long-term support, and antiretroviral therapy, this threat could be alleviated. http://www.who.int/whr/2004/en/ http://www.who.int/mediacentre/releases/2004/pr33/en/

The World Bank and International Monetary Fund are working on ways to prevent new debt crises in low-income countries. Their program includes a wide range of initiatives including specific projects such as development of a debt sustainability framework, tactical projects like how to overcome external shocks, and broader issues such as the link between low economic growth and unsustainable levels of debt. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20199416~menuPK:34457~pagePK:64003015~piPK:64003012~theSitePK:4607,00.html

Christian Aid published "The politics of poverty: Aid in the new Cold War" that finds "Some of the world's poorest people are already paying for the War on Terror, as the giving of aid by the world's richest countries becomes ruled by the rhetoric of 'with us or against us'". They investigate the policies of donor countries and how some military training and intelligence gathering are now being funded from aid budgets and further examine the cases of Uganda and Afghanistan. http://www.christianaid.org.uk/indepth/404caweek/cawreport.pdf

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2. Africa

Angola's natural riches and the inability of that wealth to reach all sectors of society is the subject of "War, Peace and Diamonds in Angola: Popular Perceptions of the Diamond Industry in the Lundas", by Justin Pearce, ISS Situation Report, May 2004 http://www.iss.co.za/AF/current/2004/angolamay04.pdf. Angola does plan to release more details of the oil industry in order to support greater financial transparency. http://www.angola.org

Burundi rebels of the FDD plan to continue their boycott of the transitional government, despite appointment of its members to government positions, pending full implementation of the power-sharing agreement.

Democratic Republic of Congo rebels and the Rwandan army exchanged more border attacks, raising repeated concerns that war could break out again.

Ivory Coast stands accused of organizing a security operation against opposition demonstrators as a pretext for the death, summary execution and torture of more than 120 people. http://www.un.org/Docs/journal/asp/ws.asp?m=S/2004/384

Malawi's national elections will be held May 20, two days later than planned to accommodate opposition complaints of exclusions from the voting list.

In Kano, Nigeria, some 10,000 Muslims marched to protest the killings of more than 600 Muslims at the hands of Christian gunmen last weekend. The march quickly turned violent, with widespread rioting that killed more than 30 people in two days. Tens of thousands of people have been displaced by the fighting.

South Africa has been chosen to host the 2010 World Cup.

Sudan's crisis escalated further, with necessary humanitarian aid for refugees failing to materialize while the Sudanese-government-supported Arab militias continue cross-border excursions into Chad, raiding cattle and destroying villages.

Zimbabwe's President Robert Mugabe forced the UN World Food Program assessment team to leave the country, saying there is no need for aid, but more likely from fear they would reveal the extent of the food crisis and failure of the land reform program. There are reports that Mugabe is arranging a secret deal to obtain grain in exchange for other resources to then use it as a political tool in forthcoming elections. It is also reported that Mugabe does not plan to seek reelection when his term expires in four years.

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3. Americas

Chile established a government commission investigating human rights abuses under the 17-year Pinochet dictatorship. They invited public testimony that resulted in 20,000 submissions.

Colombian troops fought rebels in several areas, killing seven Revolutionary Armed Forces of Colombia (FARC) rebels, five National Liberation Army (ELN) rebels, and one United Self Defense Forces of Colombia (AUC) paramilitary. Meanwhile, the country's possession of two million displaced people and one million homeless has been called the biggest humanitarian crisis in the Western Hemisphere. Internationally, Colombia's internally-displaced population is exceeded only by Democratic Republic of Congo and Sudan.

Haitian's former President Jean-Bertrand Aristide and his family have been granted permission to visit South Africa until the situation in Haiti is stable enough for his return.

The US Department of Justice announced implementation of the National Criminal Intelligence Sharing Plan for federal, state and local law enforcement agencies to share information. http://www.usdoj.gov/opa/pr/2004/May/04_ojp_329.htm

Venezuelan President Chavez reports that the army captured a group of 56 Colombian paramilitaries who were plotting his overthrow or assassination. Opposition leaders suggest the claim could be a publicity stunt but Colombia has acknowledged that a number of paramilitaries and mercenaries from Colombia were involved and has offered cooperation to defeat such activities. At least 18 paramilitaries have been arrested.

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4. Asia Pacific

Australian Aborigines have launched their first political party, Your Voice, and are expected to register and field candidates for this year's federal elections.

Burma's main opposition National League for Democracy (NLD) party will boycott the military junta's planned constitutional convention scheduled for next week since it refuses to release NLD leader Aung San Suu Kyi from house arrest.

Indonesian separatist rebels of the Free Aceh Movement (GAM) turned over 22 hostages to the Red Cross and said it would release all detainees, numbering more than 200. Government troops remain in the area but the declared state of emergency will be reduced to a state of civil emergency on May 19, a year after the military operation was launched.

Malaysia plans to shut down radical Islamic web sites hosted inside the country following the discovery that the video footage of Nicholas Berg's beheading in Iraq had been served there as well as a number of other sites with similar material.

In the Philippines, elections were held on Monday amid reports of widespread chaos and fraud. On the island of Jolo a bomb thrown at a military vehicle missed its target and instead hit passers-by, killing three.

South Korea's Constitutional Court overturned parliament's vote to impeach President Roh, who in turn apologized for his election-law actions leading to the impeachment and has resumed his duties.

Taiwanese officials are examining all ballots from the disputed March presidential election in which the number of invalid ballots was 11 times greater than the margin of victory. Three people are being questioned in connection with the shooting of President Chen just before the election.

In Thailand, bombs exploded at three Buddhist temples in the south. There was no serious damage and only one person was slightly injured. The incident is under investigation.

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5. Europe

The UN Interim Administration Mission in Kosovo delivered its first Security Council briefing since the ethnic violence that killed 19, injured more than a thousand, and displaced 4,000 people. They commented on the speed of the unrest overwhelming the ability to respond, efforts to bring the perpetrators to justice, and the adverse effects on the returns process and overall security. http://www.un.org/News/Press/docs/2004/sc8090.p2.doc.htm

Greek extremists of the Revolutionary Struggle claimed responsibility for the May 5 explosions.

In the Russian province of Chechnya, more details have emerged of the bombing last weekend that killed Chechen President Akhmad Kadyrov and more than 20 other people. The bomb was planted under the VIP stand at a stadium where leaders were attending a World War II victory ceremony. His death, after seven months in office as the Moscow-selected head of state, has plunged Russian plans for Chechnya into disarray but made no change in the threats of inevitable military retribution for the attack. Kadyrov's son is one of the possible successors. More Russian troops have been ordered into Chechnya. Five suspects have been detained.

Britain's emergency preparedness comes into question in a BBC Panorama program "London under attack" that portrays a mock exercise putting emergency plans to the test and demonstrating gaps in emergency preparations. The government said the program is irresponsible and alarmist and they did not cooperate in its production. http://news.bbc.co.uk/2/hi/programmes/panorama/3686201.stm
Another BBC report investigated leaders in the criminal underworld and produced a list of the UK's wealthiest criminals: http://news.bbc.co.uk/2/hi/uk_news/magazine/3715205.stm

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6. Middle East

A violent week in the Gaza Strip left dead at least 29 Palestinians and 13 Israeli soldiers. In one macabre incident, body parts of Israeli soldiers were seized and displayed; their return had to be negotiated. Palestinian militants also forced UN ambulance drivers at gunpoint to transport them with some of the pieces.

Before the fighting started the UN Relief and Works Agency for Palestine Refugees (UNRWA) reported that May has been one of the most intense periods of destruction since the start of the intifada. Israeli Defense Forces demolished or damaged beyond repair 131 residential buildings, leaving 1,100 people homeless, with the total number who lost their homes in Gaza at 17,594. See http://www.un.org/unrwa/index.html and http://www.un.org/News/Press/docs/2004/pal1979.doc.htm. During this week's attacks dozens more homes were demolished. Israel's Supreme Court rejected an appeal against the destruction, saying it was acceptable as a means of self-defense. The army now says it plans to destroy hundreds more homes along the border with Egypt to prevent their use by Palestinian militants. It has been reported that the World Bank is evaluating the Palestinian economy in the Gaza Strip prior to the planned Israeli withdrawal.

Iran's supreme leader Ayatollah Ali Khamenei has launched his own web site: http://www.khamenei.ir

In Iraq, the gravity of the prisoner abuse scandal increased as further information emerged, including details of similar abuse in Guantanamo Bay and Afghanistan and the absence of action despite reports from the International Committee of the Red Cross (ICRC) as well as other humanitarian organizations and military employees. The ICRC report is at:
http://image.guardian.co.uk/sys-files/Guardian/documents/2004/05/11/ICRCreport.pdf
Also note the Washington Post's 3-part series " The Road to Abu Ghraib":
http://www.washingtonpost.com/wp-dyn/articles/A11413-2004May8.html
http://www.washingtonpost.com/wp-dyn/articles/A13065-2004May9.html
http://www.washingtonpost.com/wp-dyn/articles/A15981-2004May10.html

This controversy has again eclipsed the serious incidents that continue to occur on the ground, resulting in dozens of casualties. Of these, the gravest situations in the past week included the beheading of US civilian contractor Nicholas Berg and the continued fighting in the Iraqi holy city of Najaf. US tanks are even now inside the Najaf cemetery and the battles have damaged religious sites, including the sacred Imam Ali shrine. All of these actions make a peaceful conclusion more and more distant; for the first time the major coalition members have suggested they could withdraw and hand complete sovereignty to Iraqis in July.

Saudi security forces seized four gunmen after a shootout in a housing compound in Riyadh.

Syria blames the April 27 bombing in Damascus on an isolated Islamic extremist group and that at least three of the attackers were Syrians who had fought in Iraq. The US imposed sweeping economic sanctions against Syria in response to alleged support for terrorism and programs to develop weapons of mass destruction. There is little trade between the two countries. Syria denies the US charges and says sanctions will harm only the US. President Assad says Syria will not expel Palestinian militants, and asks where they could go if he did.

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7. South Asia

Abuse of prisoners in Afghanistan is a systemic problem, the details of which are beginning to emerge along with news of their treatment in Iraq and Guantanamo Bay. Human Rights Watch and the New York Times have documented many of these cases. http://www.hrw.org/english/docs/2004/05/13/afghan8577.htm Violence throughout Afghanistan continues, including bombs planted along road, gunshots and beatings that have resulted in numerous casualties. President Kazai is negotiating disarmament with Ismail Khan, the powerful leader of Herat.

Despite sporadic incidents of fraud and violence, India completed national elections that were free and fair in the largest democracy in the world, with some 56 percent of 675 eligible voters participating. The marathon voting ended in a surprise finish when the ruling BJP and its allies lost their majority and will be replaced by a new opposition alliance led by the Congress ally and Sonia Gandhi, widow of former Prime Minister Rajiv Gandhi. Congress allies may include the Communist Party, the Bahujan Samaj Party of the Dalits ("untouchables"), and other small parties.

Police in Indian-administered Kashmir report they have killed Shakeel Ahmed Bhat ("Shakil Ansari"), a divisional commander of Hizbul Mujahideen.

Nepal's Maoist rebels executed a number of attacks during the week. A bus was attacked, killing 14 people, including eight security personnel. In an ambush and subsequent gunfight, two policemen and up to 16 rebels were killed. In another fight, five policemen were killed.

Pakistan detained at least 100 Islamic activists for questioning after last weekend's suicide attack against a Shia mosque that killed 15. In new inter-communal violence this week, six members of a Shia Muslim family were shot dead by suspected Sunni militants. Election violence in Karachi killed seven people.

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8. Cyberterrorism and Information Warfare

Symantec has warned of four serious vulnerabilities in its firewall products for windows that could make the system inoperable or execute remote code with kernel-level privileges. Similar vulnerabilities in ISS firewall products have been exploited by the Witty worm. http://securityresponse.symantec.com/avcenter/security/Content/2004.05.12.html

SurfControl reports that "web sites promoting hate against Americans, Muslims, Jews, homosexuals and African-Americans, as well as graphic violence have grown 26 percent since January, nearly surpassing the growth in all of 2003". They monitor sites in 15 countries and found an increase of almost 300 percent in the past four years, with 2,756 hate sites in 2000, compared with 10,926 detected in April 2004. http://www.surfcontrol.com/news/newsitem.aspx?id=650

The US National Institute of Standards and Technology (NIST) published "Guide for the Security Certification and Accreditation of Federal Information Systems" with guidelines on the security certification and accreditation of federal information systems. http://csrc.nist.gov/publications

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9. Finance

US federal regulators have levied a record $25 million fine against the Riggs National Corporation, parent company of Riggs Bank, for record-keeping and reporting failures connected with suspected money laundering activities. Details are in this week's Feature Article, below.

Northern Ireland's Organised Crime Task Force (OCTF) reports that nearly seven of ten criminal gangs are linked to paramilitary groups. This includes smuggling, robbery and extortion by the loyalist Ulster Volunteer Force (UVF) and the Ulster Defense Association (UDA) to drugs, counterfeiting and prostitution, while the republican Irish Republican Army (IRA) is linked to smuggling, counterfeiting, and tax fraud. These generate tens of millions of pounds. http://www.octf.gov.uk/news/newsstory.cfm?id=124

UBS, AG, Zurich, Switzerland, consented to a $100 million Civil Money for transactions in jurisdictions subject to sanctions under U.S. law, specifically Cuba, Libya, Iran, and Yugoslavia.
http://www.federalreserve.gov/boarddocs/press/enforcement/2004/200405102/default.htm
http://www.ubs.com/e/media_overview/media_americas/news/20040510a.html

The US Treasury designated the Commercial Bank of Syria (CBS) and its subsidiary Syrian Lebanese Commercial Bank, as a financial institution of "primary money laundering concern" under the Patriot Act, thereby imposing sanctions. US President Bush also signed an Executive Order that declared a national emergency with respect to Syria's alleged support of terrorism and other acts that it says threaten the US, thereby imposing additional sanctions including blocking property of individuals, prohibiting exports, commercial services, and other measures. http://www.treas.gov/press/releases/js1538.htm http://www.whitehouse.gov/news/releases/2004/05/20040511-6.html

US Federal financial regulators requested public comment on " proposed statement describing internal controls and risk management procedures that the agencies believe will assist financial institutions that engage in complex structured finance activities to identify and address the risks associated with such transactions". http://www.occ.treas.gov/scripts/newsrelease.aspx?JNR=1&Doc=H2SD957W.xml, http://www.occ.treas.gov/ftp/release/2004-35a.pdf, http://www.occ.treas.gov/ftp/advisory/2004-5.doc, http://www.occ.treas.gov/ftp/advisory/2004-5a.pdf

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10. Human Rights

Osvaldo Torres's execution in the US state of Oklahoma has been commuted by Governor Brad Henry following a US appeals court ruling that the US may have violated Torres's rights under international law. The International Court of Justice had ruled in March that the US violated the rights of 51 Mexican citizens by not granting them access to the Mexican consulate after their arrests.

Australia's Human Rights and Equal Opportunity Commission Inquiry "National Inquiry into Children in Immigration Detention Report - A Last Resort" tabled in parliament May 13, Australia?s immigration detention policy was found to have failed to protect children's mental health; health care and education; and unaccompanied children and those with disabilities. It also found that mandatory detention breached the UN Convention on the Rights of the Child because it failed to make detention last resort, for the shortest appropriate time and subject to independent review. http://www.hreoc.gov.au/human_rights/children_detention_report/index.html

The OSCE's Office for Democratic Institutions and Human Rights published a new handbook, " National Referral Mechanisms: Joining Efforts to Protect the Rights of Trafficked Persons", that provides practical tools to protect the human rights of trafficked people and to pursue prosecution of traffickers. http://www.osce.org/odihr/?page=publications&div=intro&subdiv=refmech

International Family Day was commemorated on May 15. http://www.un.org/esa/socdev/family/

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11. Law and Legal Issues

Soliman S. Biheiri, previously convicted in US court to ten years in prison for lying under oath on his citizenship application, in connection an investigation of Islamic charity links to terrorism, has been newly indicted with concealing his connections with Mousa Abu Marzook of Hamas.

Milovan Bjelica, former mayor of Pale, Bosnia, was arrested by international peacekeeping forces (S-For) on suspicion of helping wanted war crimes suspect Radovan Karadzic evade capture.

Amir Dukan, and Alam Kabi, members of Tanzim and the Popular Front for the Liberation of Palestine, were sentenced to six and nine life sentences respectively, for four separate bombing or gun attacks in which eight Israelis were killed.

The three former leaders of the Civil Defence Forces (CDF) - Moinina Fofana, Allieu Kondewa and Sam Hinga Norman will be tried jointly on eight counts including unlawful killing, physical violence, mental suffering, terrorizing civilians and using child soldiers during Sierra Leone's 10-year civil war. Their trial in the Special Court for Sierra Leone will begin July 5. The joint trial of Revolutionary United Front (RUF) leaders Augustine Gbao, Morris Kallon and Issa Hassan Sesay will begin July 5. They also face 18 charges. http://www.sc-sl.org/index.html, http://www.sc-sl.org/index.html

Omar Sayel al-Khalayleh, nephew of senior al Qaeda leader Ahmad Fadhil al-Khalayleh (Abu-Musab al-Zarqawi), Hamza Mohammed Al-Momani, and former police Corporal Ayman al-Khawaldeh were each sentenced to three years prison with hard labor by a Jordanian court for conspiracy to carry out attacks on US and Israeli tourists.

Milorad Lukovic, ("Legija"), appeared in Serbian court after giving himself up last week to face charges of masterminding the assassination of former Serbian Prime Minister Zoran Djindjic.

Yussufu Munyakazi pleaded not guilty before the International Criminal Tribunal for Rwanda on charges of directing and participating in the 1994 genocide.

General Wiranto, a leading Indonesian presidential candidate, is wanted for human rights abuses connected with East Timor's 1999 independence vote. Eat Timor's special court has issued an arrest warrant following the Serious Crimes Unit indictment of February 2003. http://www.un.org/apps/news/story.asp?NewsID=10677

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12. Transportation

The International Maritime Bureau's quarterly piracy report shows "an alarming rise in the number of attacks at sea" in Indonesia, Nigeria, Bangladesh and the Malacca Straits. Indonesia has the highest number, with 21 incidents Q1 2004. However, India, Malaysia and the Philippines increased law enforcement and have had no attacks during this period. http://www.iccwbo.org/ccs/news_archives/2004/Piracy_report_May_04.asp

Panama has agreed to allow US officials to board and search ships sailing under its flag of convenience if they are suspected of carrying weapons of mass destruction. Panama is the largest shipping registry, with over 13,000 commercial vessels. Liberia, the second largest, has reached a similar agreement. This makes it possible for the US to investigate ships on the open seas. Previously they could only do so in US waters.

A group of leading science, engineering and education associations issued a list of recommendations to the federal government for improvements to visa processing. The current process is in crisis, deterring many of the best researchers from studying or working in the US and if the situation continues it could damage US research, education, the economy and national security. http://www.aaas.org/news/releases/2004/0512visa.shtml

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13. Weapons of Mass Destruction

The Union of Concerned Scientists published a new report, "Technical Realities: An Analysis of the 2004 Deployment of a U.S. National Missile Defense System". It finds "he ballistic missile defense system that the United States will deploy later this year will have no demonstrated defensive capability and will be ineffective against a real attack by long-range ballistic missiles. The administration's claims that the system will be reliable and highly effective are irresponsible exaggerations. There is no technical justification for deployment of the system, nor are there sound reasons to procure and deploy additional interceptors". http://www.ucsusa.org/global_security/missile_defense/page.cfm?pageID=1403

The 2001 Stockholm Convention comes into force on May 17. This international treaty bans Persistent Organic Pollutants such as the most dangerous pesticides, industrial chemicals and hazardous by-products of combustion. POPs cause cancer and birth defects and damage the nervous, reproductive and immune systems.

Britain's Deputy Prime Minister has published national guidance on decontamination following a chemical, biological, radiological or nuclear incident. http://www.odpm.gov.uk/pns/DisplayPN.cgi?pn_id=2004_0126

The May issue of Emerging Infectious Diseases has several articles of interest covering such topics as SARS, plagues following disasters, mass smallpox vaccination, etc. http://www.cdc.gov/ncidod/EID/

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14. Recently Published

Richard Breitman, Norman J.W. Goda, Timothy Naftali, and Robert Wolfe, "US Intelligence and the Nazis" National Archives http://www.archives.gov/media_desk/press_releases/nr04-55.html

Dan Briody, "The Halliburton Agenda: The Politics of Oil and Money", Wiley

Coface, The Handbook of Country Risk 2004-2005: A Guide to International Business and Trade. Kogan Page. http://www.kogan-page.co.uk/asp/bookdetails.asp?key=3683

Horst Fischer, Ulrike Froissart, Wolff Heintschel von Heinegg, Christian Raap, editors, "Crisis Management and Humanitarian Protection: In Honour of Dieter Fleck", Berliner Wissenschafts-Verlag

William Langewesche, "The Outlaw Sea: A World of Freedom, Chaos, and Crime" North Point Press

Mark Jerome Walters, "Six Modern Plagues and How We Are Causing Them" Shearwater Books

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FEATURE ARTICLE: Equatorial Guinea, Saudi Arabia, and Riggs Bank

Separated by thousands of miles and radically different economic and social conditions, Equatorial Guinea, Saudi Arabia, and Riggs Bank nonetheless come together in an example of the complex web of international financial dealings and how they can go awry.

Riggs Bank, based in Washington D.C., was founded in 1836 and quickly became part of the fabric of the US capital. It was the bank of presidents, serving at least 21 "first families" as well as members of congress and diplomats. It funded government activities including lending funds for the Mexican War, supplying gold bullion for the purchase of Alaska, and processing the $50 million World War II loan repayment. In 1844 it was the sole federal depository in Washington and during the Great Depression, it helped structure the Federal Deposit Insurance Corporation. When the federal government wanted to move to electronic cash transfers, Riggs was chosen to develop it.

The bank opened its first overseas branch in 1972. This branch in the Bahamas serviced Eurodollar deposits and loans. The following year it set up its first facility with a foreign embassy, for the British, and in 1980 opened a branch in London. By 1988 the US State Department had asked Riggs to open a branch at their London embassy and in 1999 in reunified Berlin. Riggs International Banking Corporation (Edge Act Bank) opened in Miami in 1980 to serve non-US citizens. Riggs Bank Europe was formed after the purchase of Anglo-Portuguese Bank and in 1996 extended banking services from US embassies to others in the diplomatic community. Over the next few years, it consolidated and relocated these functions to a central International Financial Center and began offering sophisticated international financial instruments. They opened new offices in London and Jersey, Channel Islands.

Riggs Bank has always remained independent and has carefully maintained its cachet as the bank of government and diplomats. These closely held "family and friends" relationships within the bank, including the Board of Directors, and among its clients, have contributed to its current problems.

This week the Office of the Comptroller of the Currency (OCC) (the federal banking regulator) and the Financial Crimes Enforcement Network (FinCEN) announced that a $25 million civil money penalty has been assessed against Riggs Bank N.A. for violations of the Bank Secrecy Act (BSA). This is the largest civil monetary penalty ever assessed against a US financial institution for violations of the BSA's money laundering provisions. New requirements to ensure BSA and other reporting compliance measures were also imposed. The BSA was enacted in October 1970, in response to increasing reports of people bringing bags full of illegally obtained cash (usually from drugs deals) into banks for deposit. It required banks to examine transactions over a certain amount, report on suspicious activities, and undertake other measures to combat fraud and money laundering.

In assessing the penalty for this week's action, the OCC found that Riggs had failed to implement an effective anti-money laundering program and therefore did not detect or investigate suspicious transactions, file required Suspicious Activity Reports, or collect and maintain sufficient information about its foreign banking customers. Transactions with classic indications of suspicious activity or lacking reasonable business or economic purpose included:
"* aggregate cash withdrawals from the accounts of the government, politically exposed persons, and government employees that totaled tens of million of dollars over a 2-year period the majority of which were conducted through PUPID [payable upon proper identification] transactions;
* dozens of sequentially numbered international drafts drawn from a politically exposed person's account on 3 dates over a 2-month period, totaling millions of dollars, and made payable to the account holder, which were returned to Riggs for crediting back to the account; and
* dozens of sequentially numbered cashier's checks purchased from the same above-listed account on different dates over a period of six months, totaling tens of millions of dollars, and made payable to the account holder, half of which were returned to Riggs for deposit back into the account."

In addition, "Riggs also failed to identify, monitor, and report suspicious activity related to the accounts of another foreign government, its politically exposed persons, and the companies owned by such persons. This was among Riggs' largest depository relationships; however, the relationship manager for these accounts had little or no supervision. Riggs failed to monitor the activity in these accounts, despite various indicators in early 2003 that should have alerted it to the high-risk nature of the relationship, including publication of a newspaper article alleging official corruption and Riggs' receipt of a subpoena requiring documents regarding the relationship."

The two countries connected with these activities are Equatorial Guinea and Saudi Arabia. Both bank with Riggs, but have two more things in common: oil wealth, and a corrupt ruling family.

Equatorial Guinea held accounts of some $360 million, funded by oil wealth siphoned into the hands of the country's long-time dictator, President Teodoro Obiang Nguema, other members of his family and government, and the Otong corporation under his control. Investigations underway are looking at links with Exxon Mobil and the possibility that the source of funds could be graft or bribery.

The Saudis have an even stronger relationship with Riggs, with some $50 million in cash withdrawals under investigation. This investigation includes the ambassador to the US, Prince Bandar bin Sultan, his wife and associates. Among other things, federal authorities continue to research possible ties with the September 11 hijackers. (More details on terrorist financing connections with Saudi Arabia in next week's Newsletter.)

As the story began to unfold, Riggs began to retrench their foreign operations. They are selling or leaving most British operations, closing the Miami operation, and limiting the number of embassy relationships. They will also close other operations that can't meet compliance requirements and are under close scrutiny by federal regulators. Among other things, the OCC directed Riggs to take the following measures to correct deficiencies in its internal controls:
"* Ensure competent management. Within 30 days, the board of directors must determine whether management or staff changes are needed and whether management skills require improvement.
* Develop a plan to evaluate the accuracy and completeness of the bank's books and records, and develop a methodology for determining that information required by the Bank Secrecy Act is appropriately documented, filed and maintained.
* Adopt and implement comprehensive written policies for internal controls applicable to the bank's account relationships and related staffing, including the Embassy and International Private Banking Group. Among other requirements, the policies must mandate background checks of all relationship managers at least every three years and must prohibit any employee from having signature authority, ownership or custodial powers for any customer account.
* Develop and implement a policy that permits dividend payments only when the bank is in compliance with applicable law and upon written notice to the OCC.
* Adopt and implement an internal audit program sufficient to detect irregularities in the bank's operation, determine its level of compliance with applicable laws and regulations and provide for testing to support audit findings, among other requirements. "

It is unusual for a large bank to fail to implement such basic controls or to continue to countenance the situation even after it became a matter of public record. It will be less surprising to see that newly regulated parts of the financial services industry (brokerages, money services businesses, etc.) face similar difficulties. Small organizations, including community banks, are also at greater risk, not least because the cost of compliance has become so prohibitive.

Further Reading:

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