Riggs Bank, the Arthur Andersen of banking

By Andrew Cochran

It has finally come to this: Riggs Bank, which used to advertise itself as "the most important bank in the most important city in the world," is finally about to plead guilty to a criminal count of violating the Bank Secrecy Act and pay a fine of $16-18 million, according to today's news. The Washington Post is reporting that the settlement still enables PNC to buy Riggs and doesn't end the ongoing criminal investigations into directors' actions. The story attempts to put the relatively low fine (compared to AmSouth's $40 million) in context. Others will raise recent stories about a "Riggs-CIA connection" as a reason for the lighter fine and its continued existence. No matter: Riggs is basically finished - it is the Arthur Andersen of banking, and won't exist as a living institution within a year or two. The Andersen breakup was painful to watch, and nobody in official Washington circles reallty wants to kill thousands of innocent jobs over the stupid, possibly even corrupt, actions of senior employees. The Riggs sale will be much neater. The real question is how many other Riggses are there in DOJ's sights?

Does anybody really believe this is the last such criminal case, when so many other major institutions have been grilled lately by prosecutors and hardcore congressional investigators (try Bank of America, Citi, Bank of New York, J.P. Morgan Chase, ABN Amro, and throw in the NYC branch of BNP Paribas for Oil-for-Food)? Does this begin to remind anybody else of the corporate fraud scandals of 2002, in which DOJ took over the whole issue, with perp walks, indictments, plea bargains, and convictions galore? How many state attorney generals will start suing the banks in trouble on behalf of state pension systems, as they did during the corporate accounting scandals? Could the federal financial regulatory scheme change, now that DOJ could argue that examination after examination by other agencies failed to find all the holes at Riggs and all the other major banks? Should we expect to see consumer groups, liberal do-gooders, and DOJ, with its relevant congressional authorizing and appropriations subcommittees, seek a wholesale shift in BSA examination and enforcement away from the OCC and FDIC to a new structure independent of those agencies with historical ties to the banking industry? Wouldn't that sound like the PCAOB, which was formed under the Sarbanes-Oxley Act and took over regulation of the accounting industry from the SEC after it failed to regulate the accountants, as they failed to detect and prevent corporate fraud? Are the Treasury Department and its relevant authorizing and appropriations subcommittees going to do something to plug the gaps and counter what seems to me to be the inevitable political power play? Is that why the FDIC is assuming more examination authority recently, over the objections of the OCC, which is a quasi-independent arm of the Treasury Department? And how are we supposed to hold our head up in the Financial Action Task Force meetings with other countries, when our own system's cracks are showing?

Two points of disclosure: I worked for Andersen 20 years ago as a CPA. And I was the lead counsel for the House Financial Services Committee's investigations in 2002 into the Enron, Global Crossing and WorldCom accounting improprieties, where I explained Andersen's models for Enron's off-balance-sheet accounting and Global Crossing's fiber-optic cable accounting to Congressmen and staff. So I have seen this movie before.

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