Relationship managers at private banks are often saddled with the job of implementing or helping to implement their banks' "know your customer" controls. The fiasco at the 160-year-old Riggs Bank, one of the oldest US private banks, illustrates the problems that they face when taking on new customers and managing the affairs of old ones. Perhaps the greatest problem that such people face lies in their dual role - to ensure that they "know their customers" in line with the US Bank Secrecy Act and to generate and hold onto business that could easily go elsewhere. Riggs, based in Washington, is a textbook case of the disasters that await banks that do not separate these two functions. Private bankers are drawing no comfort from the fact that neither the officers of Riggs nor the federal banking regulators come out of this story at all well. The Bank and the Senators The most famous part of the Riggs scandal involves the accounts that it handled - and the shell companies that it set up for - General Augusto Pinochet of Chile. Pinochet reluctantly gave up his job as the dictator of the Andean country in the 1980s, becoming an influential senator instead. It is obvious to any banker that a politician or military man who controls millions of dollars is up to no good - his legitimate salary is bound to be a tiny fraction of the assets under his control, so those assets are almost certainly the product of corrupt deals. The officers of Riggs ignored this in pursuit of business and exercised something that the Senate committee called "a dysfunctional anti-money-laundering programme". The bank was obliged by law to keep an eye on "politically exposed people" or PEPs, but opened at least six accounts for the ageing ex-dictator at the very moment when he was under house arrest in the UK in 1998. These accounts, the creation of which Riggs suggested itself, contained between $4 million and $8 million at any one time. The bank altered the names on these accounts in an attempt to avoid prying eyes and helped Pinochet set up offshore shell corporations to disguise their ownership. There was more. At one point, according to the sentors, Riggs moved more than $1 million from London to New York to avoid court orders and kept the very existence of the accounts a secret from the US Treasury's Office of the Comptroller of the Currency for two years. One of the secret account names was "A Uguarte", one of Pinochet's surnames; another was "Daniel Lopez". In November last year someone leaked an internal Riggs report to the press which contained fresh revelations. It revealed the existence of ten hitherto-unknown accounts at Riggs' Miami branch, which has since closed down. Files from the Lopez account had mysteriously vanished. The bank even had its own codes name for Pinochet: Red Fox and APU. Also in November, Spanish authorities listed the names of members of Pinochet's family who acted as a front for his accounts. They are: Ines Lucia Pinochet Hiriart; Maria Veronica Pinochet Hiriart; her husband, Hernan Garcia Barzelato; Marco Antonio Pinochet Hiriart; Jacqueline Marie Pinochet Hiriart; her husband Ivan Noguera; and Oscar Custodio Aitken (or Aitkin) Lavancy, Pinochet's legal representative in Spain. Relationship managers and compliance officers would do well to commit the names of these souls to memory. The Bank and the Dictator Just as damning as the Pinochet affair is Riggs' involvement with the ruling class of Equatorial Guinea, a brutal dicatorship in Africa which has recently become rich through the discovery of oil. The bank's relationship with these unsavoury people was far more lucrative even than its relationship with Pinochet. The government of this Francophone state first opened accounts at Riggs in 1995. By 2003 its oil boom was in full swing and the government plus assorted hangers-on accounted for the bank's single largest portfolio with balances and loans of some $700 million. Of course, hardly any of the revenues it generated went towards the welfare of its citizenry. By then, President (and former brigadier) Obiang Nguema Mbasogo had been 'reelected unopposed' after his rival candidates had been persuaded to "withdraw". This is the kind of relationship that every private banker used to dream about. Riggs duly resolved to provide the Africans with the same dedicated service that it was giving to Pinochet and his family. The US Senate committee also uncovered a tangled skein of relationships between the Obiang group and almost every major Western oil company in the country. ExxonMobil, through a local affiliate, leased buildings and land from Mrs Obiang. Amerada Hess leased other property from a 14-year-old relative of the president's. All the oil companies seem to have overlooked their internal rules that they put in place to help them observe the US Foreign Corrupt Practices Act. Riggs acted as though it was oblivious to these and many other shady deals. The Bank and the Saudis In 2004 the US Treasury fined Riggs Bank $25 million - partly for its adventures in Equatorial Guinea and partly for failing to report suspicious transactions made by its customer, the Embassy of Saudi Arabia. The details of Riggs' handling of Saudi accounts - especially those of Prince Bandar bin Sultan, the popular and highly Westernised Saudi ambassador to the US - are still obscure. We do know that Riggs Bank at the time was headed up by Joe Allbritton, an old family friend of the Bush dynasty, and employed President George W Bush's uncle Jonathan as a top executive. At the time Newsweek reported that cheques to two Saudi students in the US who "provided assistance to two of the September 11 hijackers" might have come from a Riggs account in the name of Princess Haifa Al-Faisal, Bandar's wife. More important is the choice that this episode presents to private bankers who, quite legitimately, want to generate business in foreign countries with very different cultures. British and American money laundering laws now present such bankers with very little leeway to accommodate those cultures. Many commentators, for example, find it unlikely that many Saudi princes have ever visited any banks, relying instead on their staff (which could include even chauffeurs or domestic servants) to visit branches for them with no identification. Until recently, this practice was perfectly legitimate in Saudi Arabia and in tune with Arabic culture. It does, however, pose many problems for any Western private bank that wants to "schmooze" its foreign clients on their own terms. The Decline of a Bank Riggs led a charmed life before its recent woes began. It was known as the "diplomat's bank", servicing diplomatic staff and foreign potentates the world over. Press reports even suggest that it had a relationship with the US Central Intelligence Agency. With the passage of the Draconian USA PATRIOT Act in 2001, however, its downfall was only a matter of time. Its fine of $25 million in May 2004 was only the beginning of its agony. In August 2004 Spain's Audiencia Nationale, spearheaded by Judge Baltazar Garzon, launched its own legal campaign against four Riggs officers. Garzon also began a campaign to freeze the assets of Pinochet's lawyer Lavancy, Pinochet's wife, several family members and Ashley Lee from the OCC, whom he suspected of destroying documents. In late November Riggs' shareholders began a civil class action against the defenceless bank. In January this year US authorities fined Riggs a further $16 million as part of a deal in a US district court in Washington. Riggs pled guilty to breaking the law over Pinochet and the Equatorial Guinea accounts but not, mysteriously, over the Saudi episode. The upshot of these troubles was the bank's decision last year to sell itself to PNC, with which it has had a stormy relationship ever since. On more than one occasion the directors of PNC have threatened to pull out of the sale if any more revelations come to light. Riggs has also just announced its desire to sell all its business in the British Isles to Bank Leumi - this, in turn, might result in an avalanche of dirty money moving towards London. Lastly, as a sordid postscript, the Sudanese have had to close their embassy in the US. Riggs, with its golden reputation as one of America's most respectable banks, was able to maintain Sudanese diplomatic accounts; no other private bank, however, seems willing to chance its arm with such disreputable customers. This is the first time that an embassy has had to close because of its inability to persuade a bank that it will not expose itself to compliance problems. Bad Lieutenants The Riggs scandal has had other victims, namely the regulators. Dan Stipano, the regulator's deputy chief counsel, admitted last June that his organisation had not regulated Riggs properly according to either its internal policies or the Bank Secrecy Act, of which Title III USA PATIOT Act now forms a part. In the same month, six US federal banking regulators published a meaningless set of "guidelines" - actually, just observations about the current state of US law - in an attempt to gloss over their incompetence and occasional corruption. This did not stop the federal government from announcing its desire to give the Financial Crimes Enforcement Network (FinCEN) new obligations to keep an eye on the federal regulators. The problem here is that FinCEN is universally recognised as a joke - it does not read most of the suspicious activity reports that private bankers must send to the Internal Revenue Service's computer centre in Detroit and has been criticised by both the Financial Action Task Force - the world's money laundering standard-setter - and the International Monetary Fund. The catalogue of mistakes and misdeeds at Riggs will generate trouble for many years to come.