[ by Melanie Gretchen ]

Citigroup and its subsidiary Banamex USA face action over breakdowns in money laundering controls that threatened to allow tainted money to move through the United States.  The Federal Reserve, acting as a banking regulator, criticized the bank over failure to monitor cash transactions for potentially suspicious activity. 

Federal Reserve Findings and Allegations.  Citigroup allegedly violated the Bank Secrecy Act, under which financial institutions like banks and check-cashing services must report any cash transaction of more than $10,000, and bring any dubious activity to the attention of regulators.  The banks also must have complex controls in place to detect any criminal activity, toward preventing drug dealers and terrorists from laundering money through the United States.

As part of a broad crackdown on the movement of illicit funds through the United States, the DOJ and the Manhattan District Attorney's office have narrowed in on foreign banks that have branches on American soil.  In Citi's case, it was the Federal Reserve that examined Citi's systems of governance and internal controls in place to prevent or detect such activity. 

Neither Citigroup nor Banamex USA, the American branch of its Mexican unit, admitted wrongdoing, and no fines were issued Tuesday related to the noted lapses at the bank units.

A Citi spokesperson countered the charges, noting that Citi "has made substantial progress" in improving its compliance and addressing money laundering risks “in a comprehensive manner across products, business lines and geographies."

Federal Sanctions.   While no fines have been levied, the bank's board has been ordered to outline a plan to fortify its controls for monitoring transactions and bolster its compliance program - to include how to finance a "compliance risk management program that is commensurate with the compliance risk profile of the organization."

[C-I Note: This reflects badly on Citi leadership - including new CEO Michael Corbat, or his predecessor Vikram Pandit, who was ousted by chairman Michael O'Neill.  Besides steering Citi out of the financial crisis, albeit with the support of a $100 million bailout from the Federal Reserve, Mr. Pandit sought to reinforce bank controls against dubious money moving through the bank, including the initiation of centralized audit and compliance functions.]

For further details, go to [Dealbook, 3/26/13].

To contact Melanie Gretchen: melanie@compliance-insights.com.