The Reserve Bank of India has fined Citibank a sum of R25 lakh under Section 47(A)(1)(b) of the Banking Regulation Act, 1949, which deals with the contravention of guidelines and instructions relating to know-your-client (KYC) and anti money laundering (AML) regulations.
In a statement on Monday, RBI said the bank?s failure to follow the KYC/AML guidelines, while opening accounts, led to the perpetration of a fraud at its Gurgaon branch. The RBI had issued a show cause notice to the bank on April 21 in response to which the bank submitted a reply dated May 6, 2011. After considering the facts and the bank?s reply, RBI concluded that the violations were substantiated and warranted imposition of the penalty.
In December last year Citibank discovered a fraud at its Gurgaon branch, perpetrated by employee Shivarj Puri, estimated at over R400 crore. Among the victims were several of its HNI clients. The Hero group and brokerages firms Religare and Bonanza were understood to have been involved. Sebi had enquired into the heist since Puri had passed off an investment scheme, which promised returns of 24-36%, as having been authorised by the capital markets regulator.
According to RBI?s investigation, the mis-representation of investment schemes, at the branch, had been taking place since September 2009 with most transactions taking place between May 2010 and November 2010.