[ by Melanie Gretchen ] Citigroup was issued a cease-and-desist order by the Office of the Comptroller of the Currency after the firm reported lapses in its anti-money laundering procedures at its deposit-taking bank, including one that went undiscovered for 4 years.  Citibank N.A.'s failure to fully comply with the Bank Secrecy Act, which requires financial firms to report suspicious activities and take other measures, made it vulnerable to money-laundering, the U.S. regulator said. System Upgrade Gone Bad. One of the problems the OCC cited was a systems upgrade that inadvertently unplugged one of Citi's computers systems from the bank's AML monitor, according to a person familiar with the situation.  To its credit, the bank discovered the problem and reported it to the OCC in 2010.  Yet, as a result of the problem, remote payments sent to Citi by customers abroad through 3rd-party banks were reviewed inadequately for 4 years in a row. Following the discovery, the bank reviewed many of the transactions from that period and found no incidence of money laundering, the source said.  To date, the OCC has not issued any fines, though a spokesman hasn't ruled out the possibility of future penalties. Huge 2011 Outlays. A bank spokesperson said the bank has "invested substantial resources in systems and personnel to resolve legacy issues and ensure we have rigorous controls throughout our organization," including $1 billion spent in 2011 to meet new regulatory requirements.  Yet, even with the investments and outlays, the bank was hit with several regulatory setbacks over the past year - though not all pertain to AML.

• APRIL 2012: Citi hit with consent order over failure to comply with AML laws.
• MARCH 2012: Rejected by Federal Reserve in bid to boost dividend or buy back more stock.
• FEBRUARY 2012: Accused by New York financial-services regulator of failing to cooperate fully with home-insurance probe.
• JANUARY 2012: Fined $725,000 by Wall Street's self-regulator for disclosure lapses over three years.
• DECEMBER 2011: Sanctioned by Japanese regulators over mutual-fund sales.
• OCTOBER 2011: Agrees to pay $285 million to settle civil fraud charges tied to a 2007 mortgage-bond deal.

[C-I Notes and Questions: Several questions popped up when reading the above list.  First, even with the substantial investment of resources and huge cash outlays, Citigroup experienced several regulatory setbacks over the past 7 months or so - not all pertain to AML, but nevertheless, it would appear to indicate that deficiencies at Citigroup have more breadth and depth than possibly originally anticipated. 

Second, how many of the above-listed setbacks and failures occurred after Citigroup introduced the wholesale changes?  Did they all pertain to setbacks and failures that had occurred previously, but only recently were discovered, from October 2011 through April 2012?  If they occurred after the changes were made, then clearly Citi has more work to do and one might question, or find fault with, the business plan for the 2011 improvements.  Either way, it would appear that there's more work ahead for the bank.]

System Reinforcement. Since restoring its monitor, Citi CEO Vikram Pandit has also centralized audit, compliance, and other functions, formerly decentralized in 100 countries around the world - prompting one insider to remark the change "eliminated ambiguity" as to whether a region head or a business head had the final say on decisions. In addition, Mr. Pandit appointed Brian Leach, a former colleague from Morgan Stanley, as chief risk officer to make the group more accountable.  Detractors of the bank's efforts question whether the bank has done enough.  Crédit Agricole analyst Mike Mayo, for example, wrote: "These examples seem important mainly because they fit into a larger pattern for a company that last decade gave back $1 due to risk management mishaps for each $3 it made." [C-I Note: Mr. Mayo appears through his comments to be expressing the same concerns that C-I brings up above.   Hmmmm!] For further details, go to [WSJ, 4/6/12].