Illegal campaign funding is the current hot topic on Capitol Hill, but managers at downtown L.A.’s beleagured Lippo Bank say they are more concerned with correcting years of poor banking practices than any misdeeds in the funding scandal.

Lippo, which is loosely affiliated with Lippo Group of Indonesia, has been in and out of the dog house with U.S. regulators four times in the last 12 years, most recently this spring when the Federal Deposit Insurance Corp. placed a “cease and desist” order on the bank for its unacceptably high level of bad assets.

Lippo also has the misfortune of counting John Huang and James Riady among its former top officials. Huang and Riady are at the heart of a Democratic fund-raising scandal, causing federal regulators to scrutinize Lippo Bank even more closely to make sure no improper funds were funneled through the institution.

Lippo Chief Executive James Per Lee has consistently denied any connection between Lippo Bank and the fund-raising scandal, adding that Huang has not been connected with the institution since his brief tenure as director in 1994. Likewise, the Indonesian Riady gave up his post as Lippo Bank CEO in 1988, although Riady remains essentially the bank’s sole shareholder, holding 99 percent of the company.

However, a memo introduced as an exhibit at Senate hearings two weeks ago in Washington showed Riady had requested the Lippo Group to wire money to Lippo Bank in 1992 to cover several expenses, including “DNC (Democratic National Committee) Victory Contribution $50,000.”

When asked about the expense, Per Lee said that transaction was nothing unusual and “would have sailed through any account of any bank in the country.”

“A depository customer of Lippo Bank made a deposit, and any checks written on their account were processed in the ordinary order of events,” he said. “Bankers are not responsible for reviewing the propriety of checks customers write, nor should they be.”

Lippo Bank has no formal connection with the like-named Lippo Group of Indonesia, though the majority stake in both companies is held by members of the Riady family.

In fact, it was a young James Riady who purchased the struggling Bank of Trade of California, then headquartered in San Francisco, in 1984 and later changed its name to Lippo Bank. At the time of the purchase, Bank of Trade was already under a cease-and-desist order from the FDIC for its bad asset quality.

Since that time and prior to the latest federal action this spring, Lippo Bank was under another cease-and-desist order in 1990 for poor asset quality and another in 1994 for violations of the bank secrecy act, which requires banks to file reports for cash transactions of $10,000 or more.

Federal regulators placed Lippo under its current cease-and-desist order on March 31, again because of problem loans.

Lippo has addressed the problem by selling off many of those bad loans, shedding 25 of its 95 workers and closing its Westminster branch. In the process of restructuring, the bank’s total assets have shrunk from about $100 million last year to the current $92 million, said Per Lee.

As part of the restructuring, James Riady also contributed $6 million in new capital in May, putting Lippo on course to turn a profit of about $600,000 this year, Per Lee said.

Federal regulators will visit the bank again this fall for a regular annual inspection, at which time they will determine whether or not to lift the current cease-and-desist order.

Bankers familiar with Lippo Bank said its shaky performance especially during Riady’s early years of ownership probably owes more to his youth and inexperience when he bought the bank than any deliberate attempts to make questionable loans and avoid secrecy laws.

As a result of Riady’s poor management, however, the bank was unprofitable for much of the 1980s and has only made small profits in two years so far this decade 1993 and 1994.

Per Lee attributed the poor performance to faulty underwriting of loans in the 1980s, though he declined to place the blame specifically on Riady.

“There were definitely some errors made in judgment in screening credit, and there was the problem with the recession,” he said. “The deadly combination (for Lippo) was weakly underwritten credit and the recession in California.”