Senate keeps an eye on Citibank

Ulhas Joglekar ulhasj at
Wed Nov 10 03:54:05 MST 1999

9 November 1999 : Senate keeps an eye on Citibank

WASHINGTON: Citibank, a US banking powerhouse with operations spanning the
globe, is under Senate scrutiny for its handling of millions of dollars in
alleged drug money for a brother of a former Mexican president.
The inquiry into activities of a unit of Citigroup Inc., the nation's
largest financial company, is shining a spotlight on the cloistered world of
private banking, which discreetly caters to the very wealthy.
But, Senate investigators say, drug traffickers, corrupt officials and tax
evaders around the world are using private banking to launder their illicit
profits through the banking system.
The abuses occur because private banking operations which often require a
minimum deposit of $1 million offer their clients secrecy with offshore
accounts, code names for account owners and shell companies, according to
The inquiry also is bringing one of the most powerful U.S. corporate
executives, Citigroup Co-Chairman John Reed, to Capitol Hill. He is
scheduled to testify Tuesday before the Senate Governmental Affairs
subcommittee on investigations.
For a year, the subcommittee has examined the private banking activities of
New York-based Citibank most notably its handling of alleged drug money for
Raul Salinas, the eldest brother of Carlos Salinas de Gortari, who was
Mexico's president from 1988 to 1994.
In money laundering, illicit profits from criminal activities pass through a
series of transactions to hide their origin and make them appear to be
legitimate business proceeds.
The Senate investigation found that Reed, as the head of Citibank, failed to
take significant action in the early 1990s despite internal warnings that
the bank was failing to follow its own policies to prevent money laundering,
said a subcommittee investigator, speaking on condition of anonymity.
Reed was aware that Citibank's internal audits showed its private banking
operation was ignoring the control policies, the investigator said.
Reed is expected to acknowledge in his testimony that bank oversight was lax
and that, as a result, key executives in the private banking operation were
replaced, rules were tightened and computer systems were improved for
monitoring the transactions of wealthy clients.
Citibank also is more closely checking the backgrounds of foreign
politicians and other public figures before accepting them as private
banking clients, Reed is expected to tell the subcommittee.
Citibank officials point to a report in January by Federal Reserve examiners
saying the private banking operation ``has demonstrated that it is committed
to achieving its goal of changing the culture ... and creating a
well-integrated global risk management and internal control structure.
Significant progress has been made in correcting control deficiencies noted
at the prior inspection.''
The Senate investigators also have examined other suspicious foreign
accounts handled by Citibank's private bankers, who have offices in 30
countries and offer services to some 40,000 clients with assets of $3
million or more.
Citibank officials declined to comment directly on the Senate subcommittee's
investigation, which follows several other government probes.
Raul Salinas was arrested by Mexican authorities in 1995 and imprisoned on
charges of masterminding the killing of a top ruling-party official. That
year the U.S. Justice Department began investigating Citibank's handling of
Salinas' money in an effort to determine whether the bank violated any laws.
A report in December 1998 by congressional investigators found that Citibank
transferred as much as $100 million in suspected drug proceeds for Raul
Salinas in 1992-94. The report, by the General Accounting Office, Congress'
investigative arm, criticized Citibank for failing to check the source of
the money.
The report found that Salinas' wife hand-carried checks to Citibank Mexico,
and they were transferred to Switzerland through a series of complex
transactions that hid their source.
Rumors abounded at the time that Salinas was linked to drug lords and had
dubious sources of income, but Citibank executives asked few questions when
the transactions were made, the report said.
Citibank has said the report ``contains errors of fact and interpretation.''
The bank, which has denied breaking any laws, pledged its full cooperation
with law enforcement authorities.
In addition to Citibank, the Senate committee investigators have also looked
into an episode at BankBoston Corp. in which former bank executive Ricardo
Carrasco, a Uruguayan citizen, was accused of embezzling $73 million by
making fraudulent loans in private banking transactions. (AP)

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