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Rhodes Scholar. Yale Law. Council on Foreign Relations. Head of a prestigious international law firm. Steven Pfeiffer, chair of Fulbright & Jaworski’s executive committee, has a top-gun r�sum� and the kind of background typically appealing to corporate boards. But Pfeiffer, a longtime director of the holding company that controls Riggs Bank, has also emerged as a backstage player in a growing scandal that has dogged a financial institution that once prided itself as a community pillar and elite banker to D.C.’s diplomatic corps. At issue is the legal work Fulbright & Jaworski performed in 2001 and 2002 for the now controversy-plagued Riggs regarding the bank’s accounts with former Chilean dictator Augusto Pinochet. The work gave Pfeiffer inside knowledge of Riggs’ quiet relationship with the aging South American despot � knowledge that, for a year, Pfeiffer didn’t share with other board members. Moreover, the work performed by Fulbright & Jaworski itself � and the role that Pfeiffer played in it � raises questions about a possible conflict of interest in Pfeiffer’s dual roles as lawyer and board member. Two lawyers with inside knowledge of the case argue that no such conflict of interest existed because Pfeiffer didn’t perform any of the requested legal work himself. In addition, Russell Bruemmer of Wilmer Cutler Pickering Hale and Dorr, who represents Riggs’ outside directors, including Pfeiffer, says Pfeiffer was on solid ground in not raising concerns over the bank’s relationship with Pinochet, because he trusted the bank was performing the required due diligence. Pfeiffer’s firm, Fulbright & Jaworski, stands behind both Pfeiffer’s work and his membership on Riggs’ board. It’s been a brutal year for Riggs. In May, the bank was implicated in reports of problematic transactions involving government officials from Saudi Arabia and Equatorial Guinea and was fined a record $25 million by the Treasury Department for failing to comply with anti-money-laundering rules. That fine and allegations that the bank had not fully cooperated with federal banking regulators led to a Senate inquiry of Riggs this summer. A day after Riggs’ executives testified in the probe, the bank announced its sale to Pittsburgh-based PNC Bank. Wilmer Cutler’s Bruemmer has been retained as part of an ongoing probe of Riggs by the U.S. Attorney’s Office in the District, one that has been expanded to include actions � or the lack of same � by Riggs’ board members. Pfeiffer has not been accused of any criminal conduct. Bruemmer spoke to Legal Times on Pfeiffer’s behalf on Oct. 8. Since then, neither Bruemmer nor Pfeiffer has replied to repeated requests for additional comment. But according to law professors, banking analysts, and corporate attorneys, Pfeiffer’s inside knowledge of the bank’s dealings with Pinochet and his failure to share it makes Pfeiffer’s role at Riggs something of a classic case of the potential conflicts lawyers can face when they sit on the boards of companies with whom they or their firm do business. “One of the fundamental, problematic [corporate governance] issues is when lawyers for firms who provide legal advice sit on the board,” says Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “That’s a compromising position to put yourself in.” SEEKING ADVICE By May 18, 2001, at least one executive at Riggs in the District knew that the bank’s ongoing relationship with Pinochet could pose a legal problem. At the time, Pinochet was appealing a Chilean court’s ruling that he would have to stand trial on charges of covering up murders and kidnappings, and government officials in Bermuda had just frozen the former dictator’s accounts in that country in compliance with an order from a Spanish court. That Friday, Raymond Lund, the vice president in charge of Riggs’ foreign private banking division, contacted Pfeiffer, who then, as now, was a director of the board of Riggs’ holding company, to obtain legal advice, according to a report issued this fall by the Senate Permanent Subcommittee on Investigations, and transcripts of Lund’s testimony before the subcommittee. (As part of the congressional investigation, the report notes, Pfeiffer was interviewed by the subcommittee on July 2.) According to those documents, Pfeiffer was apparently so concerned about the situation that he tapped Fulbright & Jaworski’s senior adviser Andres Rigo, a former deputy general counsel at the World Bank, to perform the work that weekend. (Rigo did not return calls left at his office.) The following Monday, according to the report, Rigo gave Pfeiffer a memo detailing Pinochet’s legal woes over the past three years, including allegations of torture and assassination while he was president of Chile. Clipped to the memo were 11 news articles, including a CNN.com article from earlier that week in which one of Pinochet’s attorneys was quoted as denying that the general had accounts in foreign banks. Pfeiffer, the report says, sent the memo to Lund along with his own memo, noting that “. . . over the week-end we reviewed certain online public news sources for articles that address the source of General Augusto Pinochet’s wealth and/or attempts to freeze and/or seize General Pinochet’s assets.” But, according to the report, the memos stopped short of raising concerns about the accounts. Despite evidence that Pinochet was an extraordinarily problematic figure, Riggs did not close his accounts in 2001. In fact, according to two sources familiar with Riggs’ Pinochet dealings, the full board of Riggs National Corp. wasn’t apprised of the relationship with Pinochet until more than a year later, after his account had been closed. Why Pfeiffer, in his role as director, did not himself bring up the issue of Pinochet’s relationship with the bank’s management or board � a relationship he’d learned of in his role as an attorney � drives to the heart of the question of conflict of interest. According to the Senate report, Pfeiffer told a Senate investigator that he didn’t raise any concerns about the Pinochet accounts because he assumed that Riggs had performed all necessary due diligence on Pinochet, and that management’s request for advice from Fulbright & Jaworski was a demonstration that they were well aware of Pinochet’s legal problems. That, his lawyer Bruemmer says, was a reasonable response for an outside director. “It’s a fine line between the board carrying out its oversight responsibilities and getting into management,” he says. “If a bank director has competent management in place � which is their most important job � and are getting periodic reports and asking questions about those reports, then they’re doing what they’re supposed to be doing.” But Mitt Regan, a professor of ethics and corporate practice at Georgetown University Law Center, says that as a director, there’s a strong case that Pfeiffer had a fiduciary duty to raise the issue with Riggs’ board. “A director would have responsibility to take whatever material issue to other board members,” he says. “It’s as if a member of the audit committee became aware of accounting irregularities.” Bob Clarke, former comptroller of the currency and now a partner at Houston’s Bracewell & Patterson, says lawyers and directors have conflicting loyalties. Lawyers hired by a company, he says, owe their allegiance to management, while directors owe theirs to shareholders and are charged with overseeing management on their behalf. It’s for precisely this reason, he says, that an increasing number of firms, including Bracewell, strongly discourage partners from sitting on the boards of public companies with which their firm does business. “We can be much more independent rendering legal services if we don’t sit on a company board,” he says. In fact, the American Bar Association’s 2004 Model Rules of Professional Conduct call for a lawyer-director faced with a “material risk” that his independence could be compromised either to give up his seat on the board or to stop offering legal advice. In a statement provided to Legal Times last week, Fulbright & Jaworski says it supports Pfeiffer. The firm “stands behind both our partner Steve Pfeiffer and the legal work that the firm has done for Riggs Bank. The Bank sought the firm’s advice based on our expertise in international law (which also is Mr. Pfeiffer’s specialty). Although the rules of professional conduct prohibit the firm from commenting on clients or client-related matters, we are confident that the work we performed, which was limited in nature and scope, was proper and consistent with the highest professional standards (and the fact that our firm has performed work for the Bank has been disclosed publicly in accordance with applicable rules). “As to Mr. Pfeiffer’s service on the Board of Directors of Riggs National Corporation, we note that there is no rule that prevents lawyers from serving on the board of a firm client,” the statement says. A QUESTION OF OVERSIGHT Pfeiffer had brought his anchorman’s looks and Oxford-U.S. Navy-Yale pedigree to Fulbright & Jaworski’s Houston office in the late 1970s. After moving to the firm’s London office and rapidly becoming its partner in charge, he moved back to the District in 1986, carving out a niche in international finance law. In 1987, he became chairman of the board of trustees at his alma mater, Wesleyan University in Connecticut. Robert Allbritton, Riggs’ current chief, was then a student at Wesleyan, and his father, Joe Allbritton, was still CEO of Riggs. In 1989, Pfeiffer joined the board of directors of Riggs National Corp., the parent company of Riggs Bank. According to the Senate report, Pfeiffer has also chaired the Riggs Corp.’s International Committee and its Corporate Governance Committee, and has been a member of its Audit Committee. He is also a director of Riggs Bank Europe, a subsidiary of the bank. Today, Pfeiffer, 56, is one of a small group of outside directors on the holding company board. Robert Allbritton also serves on the board of the holding company, as do four other Riggs executives. Joe Allbritton resigned from the holding company board this year, but remains on the bank’s board. Another lawyer, Charles Camalier III, D.C. managing partner of Wilkes Artis, is also on the board of the Riggs Corp. The Senate report says that firm, which specializes in real estate and tax law, has also done work for Riggs Bank. Camalier didn’t return calls. Banking analysts say Riggs’ boards were dominated by Joe Allbritton, an executive with a fondness for high-profile international clients and a proclivity for spending shareholder assets on fleets of private jets and expensive perks such as a multimillion-dollar apartment in London. Allbritton controlled Riggs through his family’s majority stake. The result, critics say, was a board that didn’t appropriately monitor the bank’s activities on behalf of its shareholders. As independent overseers at Riggs, their performance was “terrible,” says Bert Ely, an Alexandria, Va.-based banking consultant. “They had a board where Joe was calling the shots . . . and [they'd] go along and rubber-stamp it.” The Senate subcommittee report found that Pinochet had had an account at Riggs in Washington at least since 1994, and may have had an account there as early as 1985, while he was still president of Chile. Pinochet also had a certificate of deposit valued at $1.6 million at Riggs Bank in London, but, according to the report, after the former dictator was placed under house arrest in that country, Riggs quietly transferred that money to Washington without filing suspicious-activity reports with U.S. or British authorities. Though Pfeiffer had been on the board of the Riggs Corp. for a dozen years and was also a director of its European subsidiary in the same year Pinochet’s British funds were moved across the Atlantic, his lawyer Bruemmer says that Pfeiffer was unaware that Pinochet was a client of the bank’s until the day in May 2001 when Lund, the Riggs VP for foreign private banking, approached him to obtain Fulbright & Jaworski’s advice. “The directors don’t know who the bank’s customers are unless there’s a reason for it to be brought to their attention,” Bruemmer says. But if that’s true, Pfeiffer, the international finance specialist and member of the Council on Foreign Relations, hadn’t been keeping up with world news. The Associated Press, following a story in Mexico City’s El Universal, reported in March 1999 that Pinochet had an account at Riggs. That was followed by a Dec. 10, 2000, article in London’s The Observer, which detailed the ex-dictator’s alleged complicity in drug-trafficking and identified a Pinochet account at Riggs in the District with more than a $1.1 million balance. MORE LEGAL WORK In the 12 months after Fulbright & Jaworski delivered its first legal memo in May 2001, according to the Senate report, Riggs sent Pinochet at least two groups of 10 sequentially numbered cashiers checks for $50,000 each. At least half of them were drawn on an internal, administrative account at Riggs, rather than Pinochet’s own account, which, the report states, “meant that Mr. Pinochet could cash the checks without fear they could be traced back to one of his accounts at Riggs.” In June 2002, Lund again approached Pfeiffer and Fulbright & Jaworski for advice, telling Pfeiffer that the bank was considering closing Pinochet’s accounts. The legal question at stake was whether the remaining money should be returned to the ex-dictator or sent to a court or law enforcement agency that had attached Pinochet’s assets. Fulbright & Jaworski concluded that the bank was within legal bounds to return the money to Pinochet, and later that year, Riggs sent the money back to Pinochet in Chile. That may have been a correct legal interpretation. But Georgetown corporate governance expert Regan points out that hiring Fulbright & Jaworski in this case raised two additional potential conflicts. First, Regan says, even if Pfeiffer did not assist in the legal analysis, Fulbright & Jaworski lawyers may have been reluctant to render an opinion critical of Riggs’ prior decisions knowing the firm’s chairman was a longtime board member. Second, Pfeiffer, in his role as director, could have found it hard to differ with an opinion issued by the firm he heads, even if he disagreed with it. “When things go badly, that’s when people start pointing fingers,” he says. “You leave yourself open to challenge and criticism.” Where Riggs Bank is concerned, challenges and criticism have been just the beginning. It still faces the ongoing Justice Department investigation and further fines from the Treasury Department are possible. Elson, the Delaware law professor, says one lesson can be gleaned from the controversy. “If your value to the company is as a lawyer, be a lawyer,” Elson says. “If you’re a director, be a director.”

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