Crooked Bank May Be Tie Between Prince Bandar, Big Defense Contractor

By Spencer Ackerman - June 12, 2007, 6:06 PM

Accusations continue to swarm about a British defense corporation's alleged kickbacks over 20 years to Prince Bandar, the former Saudi ambassador to the United States.

Last week, the BBC and the Guardian reported that BAE Systems, the world's fourth-largest defense company, paid approximately $2 billion to an Saudi account in the now-defunct Riggs Bank controlled by Bandar as part of Britain's largest-ever defense deal. That purchase, known as al-Yamamah, brought Britain over $80 billion in Saudi money in return for BAE-manufactured aircrat in 1985, and has been a fruitful target for UK scandal-watchers ever since. Tony Blair personally scotched an investigation by his government's Serious Fraud Office into the alleged kickbacks in December, and he reaffirmed that decision last week when the Bandar allegations broke, saying, "I don't believe the investigation would have led to anywhere except to the complete wreckage of a vital interest to our country."

Both Bandar and BAE strongly maintain their innocence. BAE claims that paying the money into the Saudis' Riggs accounts was an above-board investment in "local advice, capabilities and guidance" in order to ensure the purchase went smoothly. Bandar's lawyers released a statement saying that the prince was an "authorized signatory" to the accounts, which were controlled by the Saudi Arabian Ministry of Defense and Aviation (MODA), and any withdrawals were used "exclusively for purposes approved by MODA." Bandar's father, Prince Sultan, is the Saudi defense minister.

Following lengthy investigations by the Treasury Department and the Senate, in 2005, Riggs Bank, once one of the most prestigious banks in the U.S., admitted its guilt in numerous money laundering schemes involving, among others the Saudi Embassy to Washington (which Bandar helmed), former Chilean dictator Augusto Pinochet, and the government of Equitorial Guinea. According to this week's Newsweek, Riggs's documentation of its Saudi accounts may contain clues about what Bandar in fact received from BAE:

The Riggs Bank records show the use of those funds raised concerns among bank officials and U.S. regulators. In November 2003, Riggs filed a "suspicious activity report" with the Treasury Department disclosing that over a four-month period, $17.4 million from the Saudi Defense account had been disbursed to a single individual in Saudi Arabia. When Riggs officials asked the Saudis who the person was and why he was receiving the funds, they were told the individual "coordinates home improvement/construction projects for Prince Bandar in Saudi Arabia," and the payments were for a "new Saudi palace," one document shows.

In another instance, Bandar wired $400,000 from a Riggs account to a luxury-car dealer overseas. "It was impossible to distinguish between government funds and what would normally be considered personal purposes," said David Caruso, who served as Riggs's compliance officer at the time. Caruso also confirmed to NEWSWEEK that the Saudi Defense account was regularly replenished with $30 million each quarter from an account in London. But the bank never knew the source of the funds. The bank was so concerned about the withdrawals that it cut off all business with the Saudis. In May 2005, the U.S. Treasury fined Riggs $25 million for failing to monitor "extensive and frequent suspicious" activity in Saudi and other accounts. (Asked about the Riggs records, Bandar's lawyer said the palace in question was "Prince Bandar's official residence" in Saudi Arabia and that audits by the Saudi Finance Ministry found "no irregularities" in the Saudi accounts while Bandar was ambassador.)

Look for more to come out of the Riggs collapse involving Bandar in the near future.