A Maryland start-up is making hay out of Riggs Bank’s exit from embassy banking.
The $27 million-asset Congressional Bank of Potomac, Md., says it is handling operating accounts of several embassies that used to have Riggs accounts. The $6.2 billion-asset Riggs, which got into trouble with regulators, plans to quit the embassy business by mid-July.
John Lane, Congressional’s president and chief executive, would not say how many or which embassies it is working with, nor would he reveal the size of the accounts. But his is the only local bank that has gone public with the decision to pursue embassy business.
“We are happy to accommodate many of these embassies in establishing operating accounts while they are guests in our country,” Mr. Lane said in an interview last week.
Riggs is perhaps best known for catering to embassies and other international clients. The bank, whose holding company is Riggs National Corp., decided to leave the business after being fined $25 million for violating the Bank Secrecy Act, which is meant to discourage money laundering.
The failure to appropriately screen activity in a Saudi Arabian account has earned Riggs a “troubled institution” designation and led to a shake-up of its board and management.
Though much of Riggs’ business is still up for grabs, few banks seem willing to go after it, for fear of regulatory scrutiny. Indeed, in the wake of Riggs’ troubles, one local banker called the accounts “toxic” in a Washington Post story last week.
Kate Carr, the president of the $240 million-asset Adams National Bank in Washington, said Wednesday that her bank had looked into handling an embassy account but decided against it.
“It can be an excellent business, but everyone is hesitant,” Ms. Carr said. Adams is ultimately a community bank, she said, and embassies are simply not among its target customers.
Other local banks contacted for this story either declined to comment on their interest in Riggs’ business or did not return telephone calls. Published reports have also said that Wachovia Corp. of Charlotte is interested in the business.
A spokeswoman for Wachovia, Christy Phillips, said it has a division serving embassies and other state agencies but does not discuss specific customer relationships.
Bert Ely, a banking consultant in Alexandria, Va., said most small banks lack the expertise to deal with embassy accounts. Considerations include foreign exchange, language barriers, credit risks, and especially compliance issues, he said.
“Complying with Treasury guidance is relatively tricky,” he said. [See related story
But for some small banks looking for an inexpensive source of funds to fuel loan growth, the accounts might have some appeal.
Mr. Lane said Congressional is being extra careful. For example, it will not accept international transactions and will deal only in U.S. currency, he said. It also has software that lets it check terrorist databases against its own, Mr. Lane said.
“We are conscientious of the Patriot Act and are diligent in attempts to make certain that all accounts in our bank comply” and fulfill all other regulatory requirements, he said.
