Though Citibank has so far distanced itself from the Rs 300-crore scam, alleging that it was the brainchild of its Gurgaon-based relationship manager Shivraj Puri alone, it has failed to cut ice with company law experts and chartered accountants. In fact Reserve Bank of India which is conducting a special scrutiny of the bank?s Gurgaon branch is also exploring whether Citibank had alerted the Financial Intelligence Unit of the RBI or not.
As per the FIU requirements if any unnatural movement in accounts take place with respect to Citibank, then it would have to report the same to its headquarters in New York. Experts said that this also leads to a broader question of how the bank and its internal auditors failed to detect any aberration in its operations over the last one-year. Delhi-based chartered accountant MP Mehrotra said that as per Reserve Bank of India (RBI) guidelines every bank and financial institution has to follow data pertaining to their customers. In banking parlance it is called Know-Your-Customer (KYC) guidelines. ?If Citibank had comprehensive details as per the KYC guidelines then the perpetrated fraud could have been prevented,? Mehrotra said.
According to the Gurgaon police, the money Puri had raised used to be routed through his grandfather Premnath’s account. This account that his grandfather held with the Citibank used to be the custodian account. Reportedly this account collected up to Rs 400 crore which was then invested in fake treasury operations. ?If his grandfather got so much of money in this account, then it should have automatically rung alarm bells for Citibank as per the KYC requirements,? Mehrotra said.
Drawn up in 2001, the KYC norms have stemmed from the Money Laundering Act. As per the guidelines, the banks have to maintain a comprehensive list of basic customer details to ascertain the credit worthiness of the customer. The purpose of the KYC guidelines say, ?Banks were advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority.?
Managing partner of Patnaik & Associates Sangram Patnaik said that Citibank’s internal audit practice is as much to be blamed as the bank. ?Did the internal audit practitioners not want to see the amount raised in the deposits and how the money was being utilised,? he said. Industry sources said Citibank India currently does the bulk of its internal audit practice in-house.
Advocate with the Calcutta High Court Soumya Ray Choudhary said that currently in India the internal audit practice is largely unregulated. ?The apparent lack of effective vigilance on the part of Citibank’s internal auditors should lay the foundation for imposing stringent internal audit practices to prevent similar scams from breaking out in the future,? he said.
A senior executive of a global consultancy firm who did not wish to be quoted owing to the sensitivity of the matter said that issue of internal audits are far more deep rooted than what meets the eye. As per Sebi guidelines internal auditors should directly report to the chairman of the audit committee, however in practice it is totally the reverse.
