on April 05, 2012

http://www.businessweek.com/news/2012-04-05/citigroup-ordered-to-bolster-its-money-laundering-safeguards

Citigroup Inc. (C) (C), the third-biggest U.S. lender, agreed to improve compliance with the Bank Secrecy Act to resolve a federal regulator’s complaint that the company lacked sufficient safeguards against money laundering.

The bank failed to conduct proper due diligence on customers and was too slow to file so-called suspicious activity reports, the Office of the Comptroller of the Currency said today in a consent order. The deficiencies prevented New York- based Citigroup from identifying risky customers and monitoring client relationships, the regulator said.

The potential flow of illicit funds through Citigroup, which has operations in more than 100 countries, has attracted scrutiny in the past. Japanese regulators censured the bank in 2009 and 2004 for violating anti-money laundering, or AML, rules, and congressional investigators found the bank allowed money laundering to take place in the 1990s. The Bank Secrecy Act requires banks to report all large cash deposits to help prevent crimes such as drug trafficking and terrorist financing.

“The bank has internal-control weaknesses including the incomplete identification of high-risk customers in multiple areas,” the OCC said in the order. “The bank failed to adequately conduct customer due diligence and enhanced due diligence on its foreign-correspondent customers, its retail- banking customers, and its international personal-banking customers.”

No Crimes Resulted

The OCC doesn’t allege that Citigroup’s shortcomings led to any crime and the regulator didn’t fine the bank. Citigroup, led by Chief Executive Officer Vikram Pandit, resolved the claims without admitting or denying wrongdoing and said that it has worked to fix the deficiencies.

“We have taken significant steps and developed a comprehensive plan to address legacy AML issues and better manage AML risks,” the bank said in a statement. “Many of the issues highlighted in the OCC’s Order have already been remediated or are in the process of being remediated.”

The violations outlined in the OCC’s order could be used in future enforcement actions against the bank, the OCC said.

Japan’s financial regulator ordered Citigroup to suspend some operations in the country in 2009 after it found the bank’s anti-money laundering controls had “fundamental problems.” The lender had failed to implement an improvement plan submitted after regulators forced the closing of its private banking business in Japan in 2004 for a similar failure, the watchdog said at the time.

Shell Companies

The violations followed the 1998 findings of U.S. congressional investigators, who said Citigroup helped Raul Salinas de Gortari, brother of former Mexican President Carlos Salinas de Gortari, move as much as $100 million from Mexico to Switzerland and London through shell companies and multiple accounts.

Citigroup also opened more than 100 accounts held by Russians suspected of money laundering, the General Accounting Office found in 2000.

A Senate investigations subcommittee also criticized Citigroup’s relationship with political figures including the sons of Nigeria’s former military leader General Sani Abacha and El Hadj Omar Bongo, president of Gabon, and Asif Ali Zardari, the president of Pakistan and husband of slain prime minister Benazir Bhutto.

Other banks have struggled with money-laundering controls. In October, a U.S. unit of HSBC Holdings Plc (HBC) (HBC) agreed to strengthen a compliance program that the OCC said created “significant potential” for money laundering and terrorist financing.

In March 2010, Wells Fargo & Co. (WFC) (WFC)’s Wachovia Bank unit agreed to pay $160 million to resolve a criminal investigation into drug cartels’ use of the bank to launder money through Mexican exchange houses.