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Fed Adds to Riggs' Woes

The bank must review its operations after paying $25 million in a money laundering probe.

The

Federal Reserve

ordered

Riggs Bank

(RIGS) - Get Report

to retain an independent consultant to review its operations, a day after regulators imposed a $25 million penalty on the Washington bank for violating anti-money-laundering provisions.

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The Fed also directed Riggs to institute a series of measures, to make sure the bank doesn't again run afoul of the money-laundering regulations.

Late Thursday, the Treasury Department's Office of the Comptroller of the Currency fined Riggs $25 million over alleged violations in its handling of bank accounts for several Saudi Arabian diplomats. Several government agencies had been investigating whether the accounts, which are now closed, had been used to finance terrorist activities.

Bank regulators took the action after finding that Riggs failed "to properly monitor, and report as suspicious, transactions involving tens of millions of dollars." Riggs, in agreeing to pay the fine, neither admitted nor denied the allegations. The fine is one of the largest ever imposed by the OCC.

Riggs is a favorite bank of many foreign diplomats in Washington.

The fine, which had been expected, will likely force the bank to take a charge against earnings. In the first quarter, that bank earned $3.9 million, or 13 cents a share.

In the weeks prior to the settlement with regulators, Riggs announced it would exit the international banking business. Joe Allbritton, the bank's longtime chief executive, announced he would not seek reelection to the board.

In late day trading, shares of Riggs, rose 20 cents, or 1%, to $17.87. This year, Riggs' stock is up 8%, despite the scandal.