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Citigroup Agrees to $97.4 Million Settlement in Money Laundering Inquiry

For years, Citigroup employees feared that millions of dollars the bank was moving to Mexico might be suspicious. Yet in many cases, the bank did not alert regulators or step up its monitoring for money laundering, federal prosecutors said Monday.

Even as the Citigroup unit Banamex USA was growing to dominate remittances from the United States to Mexico, the bank did not properly safeguard its systems from being infiltrated by drug money and other illicit funds, prosecutors said.

On Monday, Citigroup agreed to pay $97.4 million in a settlement after a long federal investigation into Banamex USA. In exchange, the Justice Department will not file criminal charges against the bank in connection with inadequate oversight of Banamex USA, which is based in California.

As part of the agreement, Banamex USA "admitted to criminal violations by willfully failing to maintain an effective anti-money-laundering" compliance program, the Justice Department said.

The deal represents the first such agreement between a major bank and the Justice Department under Attorney General Jeff Sessions.

It also resolves some of Citigroup's most serious regulatory issues related to its profitable, but risky, business in Mexico.

From 2007 to 2012, Banamex USA generated about 18,000 internal alerts of suspicious transactions among the 30 million Mexico remittances it processed, prosecutors said.

Yet the bank conducted fewer than 10 investigations and filed only six suspicious activity reports with regulators.

Among the red flags that Banamex USA did not heed was $1.3 billion in remittances that each totaled more than $1,500 – five times the amount that families typically send.

Most families receive remittances from one or two predictable sources. But one account holder in Mexico received 1,400 remittances from 950 senders in 40 states. Despite several automatic alerts about these transactions, Banamex USA did not file a suspicious activity report with regulators.

One of the biggest problems was staffing. The bank had only two people assigned to review the thousands of suspicious transactions manually. Even as the bank grew and employees raised questions about the problematic transactions, Banamex USA did not invest in more oversight, the prosecutors said.

"Among our most serious obligations as a bank is to achieve the strongest possible system for anti-money-laundering and sanctions compliance to protect the integrity of the financial system," Citigroup said in a statement on Monday.

Shares of Citigroup were little changed on Monday, closing down 0.07 percent, at $61.06.

Citigroup inherited Banamex USA in 2001 when the bank acquired Banamex, one of Mexico's largest banks.

Banamex helped fuel Citigroup's profit as the bank rode the wave of Mexico's growing economy and financial modernization. Banamex USA was supposed to build on Citigroup's access to Mexico's market by connecting the millions of Mexican immigrants in the United States who needed to send money to their families at home.

But Banamex has also been a source of scandals, which eventually toppled one of its top executives, the co-president Manuel Medina-Mora, who oversaw its Mexico operations and retired in 2015.

Banamex was defrauded of about $400 million by an oil services company with a history of questionable dealings. It was also revealed that rogue bodyguards for bank executives in Mexico were separately accused of taking kickbacks.

The settlement announced Monday may be examined for clues about how the Trump administration will respond to misdeeds by big banks.

After years of billion-dollar settlements in anti-money-laundering and mortgage-related cases brought by prosecutors working for the Obama administration, white-collar defense lawyers and investors have been watching to see whether the new administration will ease up on the banks.

But it is difficult to draw many definitive conclusions from Monday's agreement.

The $97.4 million settlement is only a small fraction of the $1.9 billion HSBC paid in 2012 to settle a money laundering case.

But that case also involved accusations that HSBC, which is based in London, had transferred billions of dollars for Iran, violating United States sanctions.

Banamex USA was not accused of violating sanctions.

Citigroup was permitted to settle the Mexico case without pleading guilty – a step the Justice Department under President Barack Obama had increasingly begun to require of banks that wanted to settle cases.

Citigroup was granted a nonprosecution agreement as part of its settlement. Such agreements became rare under Mr. Obama, who faced criticism that the federal government had not done enough to punish big banks in the wake of the 2008 financial crisis.

But in November, JPMorgan Chase was granted a nonprosecution agreement when it settled a bribery investigation into its hiring of the children of Chinese leaders to win business in that country.

In 2015, Citigroup agreed to pay a $140 million fine to the Federal Deposit Insurance Corporation related to the oversight lapses at Banamex USA. Three former executives at the banking unit have paid tens of thousands of dollars in fines and have been effectively barred from the banking industry.

Citigroup has been closing Banamex USA. On Monday, Citigroup said it expected the troubled unit would cease operations by June 30.

[Source: By Michael Corkery and Ben Protess, The New York Times, 22May17]

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Corruption and Organized Crime
small logoThis document has been published on 24May17 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.