This newsletter follows the inaugural Open Banker Salon. Congrats to John Pitts and Ashwin Vansan for having the idea to launch the site 18 months ago and facilitating the first of what I hope are many stimulating events. And thanks for inviting me to moderate an actual debate on the future and importance of interest rate exportation. There were emotions, interruptions, laughs and the super normal question of whether we’re “killing dual banking or federalism” — you kind of had to be there.

Also, the folks at the Financial Technology Association made some genius merch: a koozie sleeve that fits both hot and cold coffee. Literally texted eight people about it.

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The Most Important Bank in the Most Important City in the World

“I do not think any money was laundered in the vault,” is not a common thought you would have when drinking a (inventive, unique, kind of expensive) cocktail.

Vaults are for hiding things. They’re not the place where a bank, if it was engaging in money laundering on behalf of a client, would conduct such an activity. Maybe at one time, in this vault, there were hidden, secret things — gems and gold, purchased with funds diverted out of a country by an unsavory character, maybe stacks of cash that were withdrawn from an account before they could be pulled — stored in the safety deposit boxes that lined the walls. Today, those boxes have been replaced with trophy cases, filled with women’s sports trophies, because banking is still a boy’s club.

The vault room today is well ventilated (thank God, DC is already getting so hot) and there are sprinklers — no word on what year those were added. The staff at the cocktail bar, Silver Lyan, does have some general trivia about the vault space, but not when vents were added. The “entrance” to the vault room is a square the size of the vault door that you walked by just outside of the cocktail bar. You can see the fissures in the thick concrete.

No, if you worked at a bank that was amenable to providing such great customer service that maybe some money gets laundered from deposit to withdrawal, you wouldn’t do it in this dark basement vault. You’d do it upstairs, where the hotel staff is pleasant and professional. If they were weirded out by two girls asking to take pictures of the checks displayed behind the counter, they don’t show it.

Photos mine except press photo on bottom left.

Today, those spaces are gone and repurposed, because the bank, Riggs National Bank is gone. Today, the space is known as the Riggs Hotel.

The Riggs Hotel is a glow-up from the building’s first brush with hospitality, which was as a Courtyard Marriott. The group that overhauled it restored several aspects of the building that had been covered up or concealed: the “22-foot-high barrel ceiling, geometric marble floors, and Corinthian columns with ornate plaster rosettes,” wrote Bloomberg in 2020 when the current hotel opened. Hints of the building’s past show up across the hotel. In the Riggs Café, the original balustrades and brass railings of the teller windows were repurposed into counter-height seating.

The hotel website says nothing about why this building is a hotel and not a bank. So let me tell you some of the story.

The Dry Rot of Riggs Bank

Riggs Bank fashioned itself as one of the most venerable institutions in an industry that loves to venerate itself.

It was founded in 1836 and headquartered in Washington. It financed the Mexican-American War and the purchase of Alaska. At least twenty presidents had accounts at the bank, including Abraham Lincoln, Harry Truman and Richard Nixon, along with numerous politicians and other figures from American history.

In the early 20th century, it started an embassy business. It absolutely crushed this customer segment, with most embassies in Washington having an account there by the middle of the century. Texas businessman Joe Allbritton acquired a controlling stake in the bank in the early 1980s and became chairman and later CEO. And that is kind of where the trouble really starts ramping up.

“Embassy banking is interesting, because it can be very high risk for [money laundering] or it can also be very low risk,” Dan Stipano, the former deputy chief counsel at the OCC and head of AML/CFT at Davis Polk, told me, later adding: “There's not normally a lot of money going through the accounts and the funds are typically used for mundane expenses like paying the embassy’s staff and utility bills. Generally, they're very boring — except for the ones that aren't.”

Servicing this business line the way Riggs did was complicated by the Sept. 11, 2001, terrorist attacks. Dan said that “literally overnight,” Bank Secrecy Act compliance went from a “somewhat arcane compliance area” to “a matter of national security.”

Regulators raised the bar for BSA compliance after the attacks. A year later, Newsweek ran a story that discussed Omar al-Bayoumi’s connection to two of the 9/11 hijackers. The story mentioned cashier’s checks from Riggs that his wife had received from an intermediary who had gotten them from Princess Haifa bint Faisal, the daughter of the late King Faisal and wife of Prince Bandar. The concern was whether these funds had gone to the hijackers; in two subsequent investigations, the government determined there was no evidence of this. But the allegation was enough to cause regulators to take a closer look at the bank, according to a 2004 article in The New York Times.

They would not like what they found.

Excellent Customer Service

I'm sure there are many, but Riggs Bank had two famous client relationship that underscored how it approached business and customer service.

There’s not a good way to say this: Riggs Bank wanted to bank a dictator. Augusto Pinochet Ugarte came to power in Chile in 1973 after a quick but bloody coup and functioned as a dictator until 1990. He was “widely accused of murdering political dissidents in Chile and abroad,” according to a 2004 article in The Washington Post, when he was under house arrest.

A Riggs internal investigation in 2004-05 found that Pinochet had been actively “courted by Riggs senior bank management,” including Allbritton. Pinochet opened his first account at the bank in 1985 — more than a decade earlier than had been previously believed. He and his family had more than 10 accounts at the bank and hid millions in the decade-plus relationship. Allbritton was “periodically informed” by the Latin American embassy and international private client group about the status of these accounts starting in at least the mid-1990s.

The customer service Pinochet received seemed impeccable. The bank referred to him using code names including “Red Fox” and “APU;” they listed Pinochet’s name on his 1985 account as “Jose Ramon Ugarte.” Disguising these accounts allowed Pinochet and his family to move funds internally and made them difficult to trace.

Equatorial Guinea discovered oil off its coast in 1995, according to a 2009 Human Rights Watch article (never a good sign to cite HRW). Offshore accounts are common among oil producers so they can receive payments in dollars, according to HRW, so the country became a client of Riggs Bank.

Not just any client, though: Equatorial Guinea, which was “one of the most corrupt and repressive [regimes] in West Africa,” according to a 2005 Post article, was the bank’s largest depositor. At its peak, the government had $700 million in deposits at the bank. The president of Equatorial Guinea and his relatives “maintained signatory authority over many of the Riggs accounts and had complete discretion over the use of those funds.” By contrast, the International Monetary Fund had advocated since the late 1990s that the government merge these accounts into a single treasury account with the African central bank to make it harder for government officials to misappropriate public funds for personal use.

Citing 2003 coverage from the Los Angeles Times, HRW wrote about how the bank helped the Equatorial Guinea president finance two mansions in the DC suburbs, purchased under his name but listing a Riggs Bank branch as his address. On other occasions, the bank accepted millions of dollars of cash — “often packaged in ‘unopened plastic-wrapped bundles’ and carried in suitcases by the Riggs account manager for Equatorial Guinea— ‘with few questions asked.’”

Court papers found that the former manager of African accounts at the bank and the bank itself “failed to file reports on numerous suspicious transactions” involving the president of Equatorial Guinea, his family or other officials. Riggs closed the Equatorial Guinea account in 2004, shortly before exiting the embassy and international business.

A Bank Ahead of Its Time?

In 2004, the Office of the Comptroller of the Currency issued a consent order to the bank and the Federal Reserve issued a consent order to its parent. In 2005, the OCC levied a $25 million for failing to file suspicious activity reports for transactions involving these accounts and accounts of Saudi Arabian diplomats. The bank then pleaded guilty to one felony count of failing to file suspicious activity reports and agreed to pay a $16 million fine. That brought total criminal and civil fines to $41 million in 2005.

“That [the $25 million fine] was the largest civil money penalty that the OCC had assessed up to that point,” Dan said. He added that “while this amount seems small by today’s standards, it was groundbreaking at the time.” News reports at the time indicate that the fine was in excess of what Riggs was thought to have made from these business lines.

Despite these sordid details, Riggs Bank was still attractive enough to be acquired by PNC Financial Services Corp. in 2004. The deal closed in 2005 after the parties renegotiated the terms and settled on a $652 million price tag. Riggs Bank ended 165 years of operation in 2005, going from the bank of presidents and U.S. expansion to one mired in embarrassing scandal. Some of its history would carry forward in the iconography and aesthetics of the luxury hotel now housed in its former offices. And some would be forgotten.

“Riggs Bank got caught in shifting winds,” Dan said. Regulators had raised their expectations for banks’ anti-money laundering controls significantly, but “the way they operated was the way they had always operated.”

Reporting at the time indicates that the OCC forced the bank to close the Pinochet accounts in 2002, after more than 15 years. Even though the agency didn’t cite the bank for money laundering, Allbritton was still upset at what he saw as the regulator telling the bank what to do.

Allbritton “asked bank officers to prepare materials so he could make a personal call to then-Comptroller of the Currency John D. Hawke Jr. to complain,” the Post reported, citing sources close to the bank's investigation. This call did not evidently happen, and the former Comptroller, who was in private practice when the article was written, said that he would not have discussed the issue. As spokesman for Allbritton clarified that the former CEO of Riggs “wanted to register displeasure that a bank examiner could decide what kind of clients a bank had, not that Riggs had to surrender Pinochet in particular.”

Bank examiners deciding what kind of clients a bank could have? Wow, that sure sounds familiar. The decision to provide or not provide banking services to a dictator surely is a decision about one’s politics, although there are likely other complicating factors that otherwise discourage this type of customer relationship. Maybe U.S. banks would decide, today, not to do this. Maybe (hopefully?), it’s illegal as part of sanctions laws — although my friend Jason Mikula is dutifully documenting the robust and innovative industry dedicated to skirting sanctions.

The end of Riggs Bank came swiftly after it fully realized the reputation risk it was taking. Today, its legacy is as a fancy hotel, remembered as a bank that wouldn’t have been able to survive — either by clients or strategy — in today’s modern financial ecosystem.

Author’s note: Because I am who I am, I must share that the Riggs Hotel is part of the Chase Edit collection and American Express' Hotel Collection, making it eligible for both premium cards’ prepaid hotel credits.

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ONE EVENT I'D RECOMMEND

Most banks interested in offering stablecoin cards aren’t sure how to actually build them.

The technology promises faster payments, global money movement, and fewer delays. But running a stablecoin card program inside a bank is harder than it sounds, and that's a real problem. .

Rain and Western Union have figured it out. They connected blockchain wallets to cash payouts through Western Union's global retail network.

On June 30th, they're joining my friend Alex Johnson at Fintech Takes to talk through what they built … and what banks keep getting wrong.

If you’re curious — or serious — about where stablecoin products are heading, block an hour and join them.

FROM THE VAULT

What’s on my mind and filling my time:

🌎 It’s the End of the World, and I feel…: Trend forecaster Sean Monahan has written a couple of money-adjacent pieces recently, trying to describe how “the economy” and money make people feel. The two thought-provoking pieces are “Why is ‘doomspending’ on the rise?” and “doomspending and europoor summer.”

🌫️ Piercing the fog: Interesting article from The New York Times about how banks are training tellers and call center staff to recognize the signs that a customer is transacting with fraudsters. I think this work has a lot of interesting parallels to people who work with individuals who have been part of high-control groups; they’re surprisingly delicate situations. 

🎙️ On Bank Nerd Corner: I chat with Justin Steffen, a partner at Barack Ferrazzano, about the legal case between Kraken and the bankrupt trust company that allegedly lost its money

Thanks for reading! If you have any fun memories of Riggs Bank or another iconic bank that's no longer around, drop me a line! - Kiah