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Feds Pursue Terror Financing

Riggs Bank (search), under investigation and facing sanctions by federal regulators, is retrenching in its foreign operations and the head of the family controlling the bank is resigning from the board of its parent company.

The FBI and banking regulators have been investigating large cash transactions in Riggs accounts, controlled by Saudi diplomats, for possible connections to terrorism financing. The bank said late Thursday that it expects the regulators to soon impose substantial civil fines for alleged violations of anti-money-laundering laws (search).

Regulators are considering fines of about $25 million, a source said Thursday, speaking on condition of anonymity and confirming a report in The Washington Post. That would be the largest civil penalty ever imposed on a financial institution for such violations, experts say.

Riggs, with some $7 billion in assets, earned $3.9 million in the first quarter, the parent company reported in a periodic regulatory filing. Annual earnings have not exceeded $25 million since 1999.

The head of the Senate Finance Committee has asked the commission investigating the Sept. 11, 2001 attacks to examine Saudi transactions totaling tens of millions of dollars at Riggs and FleetBoston Financial Corp. (search) Sen. Charles Grassley, R-Iowa, made the request in a letter to members of the independent panel.

Riggs, an old-line institution that draws cachet from its business with the diplomatic community, has been accused by Treasury Department regulators of failing to notify the government, as banks are required to do by law, of suspicious transactions. Treasury's Office of the Comptroller of the Currency (search) has classified Riggs as a "troubled institution" for failing to fully comply with a July 2003 consent order under which it agreed to strengthen its anti-money-laundering controls.

The bank also indicated in its filing that family patriarch Joe Allbritton, Riggs's former chief executive, is resigning as vice chairman of the parent company's board of directors. Allbritton, who transferred control to his son, Robert, several years ago, will remain the company's largest shareholder. Riggs president Timothy Coughlin also is resigning from the board.

Riggs said it is selling or leaving most of its operations in Britain and closing its operation in Miami as well as any embassy business that doesn't meet guidelines for weeding out suspicious account transactions.

Treasury officials faced questioning by senators Thursday on government efforts to fight the use of U.S. institutions for financing terrorism and the handling of the Riggs situation by the department's enforcement divisions.

Committee Chairman Richard Shelby, R-Ala., said he was concerned that Treasury's enforcement divisions "were unable to determine that Riggs failed to file numerous suspicious activity reports."

"This, I believe, is evidence of a regulatory system that does not function effectively," he told Deputy Treasury Secretary Samuel Bodman.

Bodman, on the job since February, said the government "has had an effect on the ability of Al Qaeda and other terrorists to raise and move money around the world."

Actions to date, notably the blocking of more than 1,400 accounts and $136.7 million in assets of Al Qaeda (search) and other terrorist groups worldwide, "have made it riskier and costlier for them to try to use the formal financial system," Bodman testified.

"There is reason to believe that this is working," he said.

Bodman acknowledged that the Riggs case may signal possible shortcomings in the government's enforcement system. "It's fair to say we have a potential weakness that needs to be investigated," he said.