Criminal inquiry to be opened on Citigroup

Apr 04 2014, 12:18 IST
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SummaryJust as Citigroup was putting a troubled past of taxpayer bailouts and risky investments behind it, the bank now finds itself in the government’s cross hairs again.

Just as Citigroup was putting a troubled past of taxpayer bailouts and risky investments behind it, the bank now finds itself in the government’s cross hairs again.

Federal authorities have opened a criminal investigation into a recent $400 million fraud involving Citigroup’s Mexican unit, according to people briefed on the matter, one of a handful of government inquiries looming over the giant bank.

The investigation, overseen by the FBI and prosecutors from the US attorney’s office in Manhattan, is focusing in part on whether holes in the bank’s internal controls contributed to the fraud in Mexico. The question for investigators is whether Citigroup — as other banks have been accused of doing in the context of money laundering — ignored warning signs.

The bank, which also faces a parallel civil investigation from the Securities and Exchange Commission’s enforcement unit, hired the law firm Shearman & Sterling to lead an internal inquiry into the fraud, said the people briefed on the matter. At a meeting last month, the bank’s lawyers presented their initial findings to the government.

The bloom of activity stems from Citigroup’s disclosure in February that its Mexican unit, Banamex, uncovered an apparent fraud involving an oil services company. The disclosure — that at least one Banamex employee processed falsified documents that helped the oil services company obtain a loan that cannot be repaid — generated immediate interest from federal authorities. But the decision by the FBI and prosecutors to open a formal probe, a move that has not been previously reported, has now officially drawn a faraway crime to Citigroup’s doorstep.

The case represents another setback for the bank, which has also come under fire from regulators in Washington. Last week, the Federal Reserve rejected Citigroup’s plan to increase its dividend. The rebuke embarrassed the bank and raised questions about the reliability of its financial projections.

The scrutiny coincides with Citigroup’s recent announcement that it faces a separate, and perhaps more threatening, investigation from federal prosecutors in Massachusetts. The prosecutors, who have sent subpoenas to Citigroup, are examining whether the bank lacked proper safeguards against clients laundering money. Citigroup, the people briefed on the matter said, has hired the law firm Paul, Weiss, Rifkind, Wharton & Garrison to handle that case, which stems from the prosecutors’ suspicion that drug money was flowing through an account at the bank.

Together, the developments threaten to complicate Citigroup’s relationships with government authorities, who had previously lost faith in

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