Citicorp and Citibank
(before the merger)

This page documents the money laundering and other allegations of unsavoury conduct by John Reed's Citicorp before the Citigroup merger in 1998.

CONTENTS

• Introduction
• Money Laundering
  • Greece 1990
  • Poly Peck fraud Europe 1990
  • Mexico 1996
  • African Countries 1999
  • Russia 1999-2000
  • Argentina 2001
  • Money laundering in London 2000-2002
  • Funnelling Aid into US banks 2003
• Other Concerns
  • The 1980s Wall Street Fraud
  • United Kingdom 1990
  • Misinformation by Citibank 1991
  • Brokerage scandal in India 1992
  • Fraud in London 1997

Introduction

I have not researched the 1980s to see if Citicorp or Citibank were part of the Wall Street Milken frauds or the UK Maxwell frauds during those years. Citibank was subject to different pressures to those in investment banks like Salomon Smith Barney.

Profit and social responsibility clashed most obviously in the area of money laundering. Money laundering consequently provides an excellent window into the company.

Criminals including ruthless dictators wanted to move vast sums of money between countries and into safe havens. A large industry was established and as favoured customers they were given special treatment. Normal banking procedures were waived in order to accommodate them.

Vast profits could be made from money laundering and from garnering business from countries whose corrupt rulers wanted to launder money. Citibank jumped right in and led the way. Its conduct here was most disturbing. It was the immorality and the social consequences, rather than the illegality which shocked the world and severely damaged Citibank's credibility.

Also revealed was the arrogance of the bank, its disregard for the public, and for regulators as it continued helping ruling tyrants after they and the bank had been exposed.

There were probably few other large system wide conflicts where social responsibility conflicted directly with the corporate profit mission. There were a number of other allegations of undesirable conduct but these seemed to be local rather than systemic.

Money Laundering

Probably the best example of the deceitfulness and antisocial behaviour of the banking industry is the extent to which the banks, and particularly Citibank aided and even targeted tyrannical rulers, drug runners and other unsavoury individuals who raided the coffers of their countries, or took bribes from other multinationals, and then laundered the money through banks in London and the USA on the way to Swiss banks.

Banks were expected to carefully monitor their international customers to confirm the customer's validity and ensure that large sums were legally obtained. They were expected to notify authorities of suspicious transfers. Processes to do this were required and were set up by the banks. Certain categories of crime were specifically prohibited and banks in both countries were legally required to report money laundered from them. The problem however is not the legality of what they did but the morality.

Quite apart from the direct profits from this lucrative business there were large additional benefits. The countries handled large sums of money themselves. They received aid and moneys from foreign countries. They channelled these funds through the banks. They also in some instances borrowed from banks and then repaid them from aid money.

Some banks including Citibank had branches in these countries. The financial advantages to those who helped the rulers and their families were enormous. Confidential accounts and false names were the rule. Some tiny countries had vast numbers of banks and they advertised the confidentiality of their services.

Banks exploited the loopholes to their legal limit and conveniently ignored breeches of procedure. Citibank owned a little known bank in Switzerland to which money was transferred. Citibank was the largest offender and experienced the most adverse publicity. Their practices resulted in a US senate inquiry and a criminal investigation.

Citibank fell over backwards to show that it was reforming. It made a show of leading the way in repeatedly getting banks to set in place stricter procedures. At the same time it continued these practices itself. In a senate inquiry in 1999 soon after the merger which created Citigroup, CEO John Reed excused this on the basis that it was difficult to change corporate culture. In this he was undoubtedly right but it was the competitive pressures and emphasis on profits which he had imposed on staff that had resulted in these practices and this culture. Citibank was a leader and not a follower.

After the second government investigation in November 1999 revealed continuing failures the US extended its legislation to tighten controls.

The unfolding press reports reveal the ruthlessness displayed by Citibank as it helped dictators and criminals from the poorest countries across the world channel the remaining wealth from their countries, as well as aid intended for their citizens, into their personal bank accounts in Switzerland.

While publicly proclaiming its intention to abandon its practices Citigroup looked the other way. Even after criminals had been imprisoned and investigations into their accounts had been commenced in the USA Citibank continued their accounts and helped them further. The practices continued into the 21^st century long after John Reed had departed.

These reports tell such a sordid and revealing story that I have included quite a few extracts.

The money laundering instance which cost Citibank most dearly was Mr Salinas in Mexico but this did not stop them. I will go through them chronologically

 Bank details revealed in Greek affair Financial Times (London,England) March 2, 1990

Mr Nadir and his company Poly Peck spread their ill gotten gains through the banking world. Funds were frozen in "17 Swiss institutions including private bank Confidas, a little-known subsidiary of American banking giant Citicorp". Citibank was sued for 75 million pounds. I do not know the outcome.

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Mr Morris claims that a substantial sum was paid out through offshore companies managed for Mr Nadir by Confidas Finance et Placement. Citibank sued over Polly Peck millions The Independent (London) February 11, 1993

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Mr Salinas was the brother of Carlos Salinas de Gortari, the former Mexican President, who had been imprisoned in Mexico City. Mr Salinos was subsequently also imprisoned and accused of murder. The money came from drug cartels. Citibank held a privileged position in the country and negotiated tens of billions of dollars in bank debt for other institutions.

Some politicians were so disturbed by the findings of a US investigation that they opposed Citigroup's merger with Travelers in 1998. The extracts tell the story

In 1996 the Mexican government commenced an investigation and asked the USA for assistance. Citibank's records were subpoenaed. US investigations followed. The General Accounting Office (GAO) produced a detailed report and a senate hearing followed. Department of Justice prosecutors investigated but despite the unsavoury nature of the conduct they could find only one legal breech. Particularly revealing was the effort the bank made to assist their client after he was arrested, flying to Mexico to see his wife - and the way they then withheld information. They decided not to destroy documents because there were other pointers which would have revealed their actions.

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The bank records relate to money that Mr. Salinas transferred out of Mexico through Citibank to New York, usually sending the money on to accounts in Switzerland - - -
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Banks are required to file reports with regulators and law-enforcement agencies when they suspect criminal activity.
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The bank has a long and cozy relationship with the Salinas family and the Mexican elite in general. For years, Citibank was the only United States bank with a branch in Mexico. Citibank's top officials customarily stop by the President's office when they visit Mexico.Citibank's Records Examined As Part of Mexican Inquiry The New York Times March 30, 1996

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Citibank, which was questioned by U.S. federal agents as part of the investigation, denied knowledge that Salinas was involved in any alleged criminal activity. CITICORP DOES NOT EXPECT SALINAS CASE TO HURT PROFITS The News (InfoLatina S.A. de C.V.) April 10, 1997

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Citibank created a money management system for the brother of Mexico's former president, Carlos Salinas, that disguised the origin, destination and ownership of large funds he transferred to banks in Europe, according to a report by US congressional investigators released yesterday. - - - - - "Citibank, while violating only one aspect of its then policies, facilitated a money managing system - - . Citibank system 'disguised Raul Salinas funds' Financial Times (London,England) December 5, 1998

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- - - , Citibank executives ignored some of the bank's own safeguards against the laundering of illicit funds, a Congressional report says.

As the bankers took in millions of dollars from Mr. Salinas, they never asked for standard information on his financial background and made virtually no effort to verify the source of the money, the report said.

After Mr. Salinas was arrested for murder in 1995 and lawyers for the bank had begun monitoring his accounts, his personal banker in New York quietly advised Mr. Salinas's wife to move the money elsewhere, apparently without the consent of the legal department.

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From Mexico, Mr. Salinas's money went to a Citibank account in New York that disguised its origins by mixing it with deposits from other banks and customers. The funds were then sent to Swiss and British accounts in the name of a Cayman Islands shell corporation, Trocca Ltd., that was run by three other offshore shell companies but secretly controlled by Mr. Salinas.

The Congressional report states that after Mr. Salinas's arrest in February 1995, Ms. Elliott filed a brief financial profile and went to Mexico City without the knowledge or consent of the bank's legal representative to try to persuade Mrs. Salinas to close her husband's Citibank accounts.

Mrs. Salinas finally did try to consolidate his holdings, but was arrested in Switzerland that November. Only then did Citibank file a criminal referral form, the Congressional report states, but it neglected to mention Trocca or the Swiss or British accounts. U.S. Report Says Salinas's Banker Ignored Safeguards The New York Times December 4, 1998

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After Mr. Salinas's arrest in 1995 on murder charges -- he was later convicted of participating in the murder of his former brother-in-law -- the initial reaction of Citibank was to see whether his money could be shifted to Switzerland to make it more difficult for law enforcement officials to discover his assets, according to Senate aides. That idea was rejected, the aides said, when it was discovered that bank records in London and the United States, which could not be destroyed, would point to the Swiss accounts. Hearings Offer View Into Private Banking The New York Times November 8, 1999

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The response of the bank to the Congressional Inquiry is revealing of their perspective and morality. "Even if true, Mr. Gray says in the letter, those offenses (ie African accounts) do not constitute crimes in the United States and thus fall outside the committee's jurisdiction". What about the morality?

Mr Reed himself in evidence acknowledges the problems, Citibank's failure to act effectively and the difficulties created by the culture which has developed.

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Citigroup's handling of bank accounts controlled by prominent African leaders and their relatives is expected to come under scrutiny in Congressional hearings that begin on Tuesday, according to people involved in the inquiry.
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Those accounts are part of a broader examination by the Senate's Permanent Subcommittee on Investigations into how Citigroup, the financial services giant, and other major banks have handled private accounts for foreign officials and their relatives.
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There are much more recent problems at Citigroup than Salinas. This is not something that ended with Salinas." Panel to Focus On U.S. Bank And Deposits By Africans The New York Times November 5, 1999

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Mr. Bongo's profile had been revised in 1997 to say his wealth stemmed primarily from government budgeted accounts and personal oil investments in Gabon and other African countries. Senate investigators, however, found the explanations unverified and, in the first case, "implausible and plainly contrary to Gabon's budget policy and actual spending," the draft report says.

Citibank documents show that bank officials were aware of news reports that Mr. Bongo was under investigation for possibly accepting bribes from French oil executives, but they were reluctant to raise those reports with Mr. Bongo or regulators, according to the draft report.
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One Senate investigator said Citibank had once lobbied to have a 1992 check for $1 million from Libya to a Bongo account offshore unfrozen by the United States government, contending that Citibank could lose its business in Gabon if the payment remained frozen by anti-terrorism statutes.
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He is concerned that Western banks that move corrupt money out of poorer countries may aid the client in committing crimes like tax evasion, illegal capital flight and false trade invoicing, all of which fall outside the reach of American money laundering statutes. But this movement of money, Mr. Baker added, sucks $100 billion per year out of poorer countries.
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The committee has also examined the case of Mr. Zadari, a former senator in Pakistan. Mr. Zadari, currently in jail on corruption charges, had about $40 million in Citibank Private Bank in Geneva.

The bank has not been accused of wrongdoing, but internal Citibank audits as well as audits by federal bank examiners continually criticized managerial deficiencies in Citibank Private Bank in Switzerland, Senate documents show.
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When General Abacha died unexpectedly in June 1998, the Nigerian government began looking into his family's wealth and billions of dollars of missing money. With the corruption inquiry under way, Citibank got a request from one of the general's sons, saying he urgently needed $39 million from the London account, records show. But the money was in a time deposit that could not be redeemed for a while without a financial penalty, the staff report says.

Citibank had long accommodated the Abacha family by setting up accounts with secret names like Gelsobella and Chinquinto. So the private bank found a way to immediately transfer the $39 million and avoid the penalty, documents show. Hearings Offer View Into Private Banking The New York Times November 8, 1999

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Congressional investigators yesterday voiced concern that American financial institutions may have aided corruption abroad by failing to enforce anti-money laundering procedures.
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"Change takes time. You cannot simply call a meeting and announce that the culture will change effective immediately. It takes long, hard work. We are doing the work and getting results," he (Reed) said. US & CANADA: Banks 'fail to stem money laundering' Financial Times (London,England) November 10, 1999

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The co-chairman of Citigroup (Reed) testified before a Senate subcommittee today that his bank had been slow to correct years of weak controls over wealthy private accounts, and he lent support to a proposal that would prohibit American banks from accepting corrupt deposits from abroad.
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Mr. Levin said that what disturbed him was a "rogues' gallery" of Citibank Private Bank clients. He said they included Raul Salinas de Gortari, a brother of the former president of Mexico who is in prison for masterminding a murder; Asif Ali Zardari, husband of a former prime minister of Pakistan who is in jail for corruption; President Omar Bongo of Gabon, subject of a French corruption inquiry; the sons of a former military leader of Nigeria, Gen. Sani Abacha, one of whom has been charged with murder; Jaime Lusinchi, a former president of Venezuela, and two daughters of former President Suharto of Indonesia. Citigroup Head Concedes Laundering Controls Were Poor The New York Times November 10, 1999

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The U.S. government is moving ahead with tough new money-laundering laws in the wake of scandals that have rocked both Bank of New York and Citibank. U.S. aims to crack down on money laundering: Targets drug lords: Strategy would extend U.S. banking jurisdiction National Post (Canada) November 11, 1999

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The US banking system's vulnerability to money laundering has been the focus of debate in the wake of disclosures earlier this year of billions of dollars that were siphoned out of Russia into accounts at the Bank of New York. US & CANADA: Banks 'fail to stem money laundering' Financial Times (London,England) November 10, 1999

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A REPORT recently released by the US government has uncovered alleged money -laundering activities through Citibank, the sister company of City financial institution, Schroders Salomon Smith Barney.

A nine-month inquiry which subpoenaed documents and bank records found that an unknown number of Russians and other east Europeans moved more than $ 1.4bn (pounds 933m) through accounts at Citibank of New York and the Commercial Bank of San Francisco.

The results of the report are being handed over to the US Attorney's office, which will carry out a criminal investigation into the alleged use of the accounts as a conduit for dirty money by organised criminals. CITIBANK LAUNDERING CLAIM The Independent (London) December 10, 2000

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US Senate investigators yesterday released fresh details of how two offshore banks run by well-connected Argentines allegedly laundered millions of dollars in bribes and drug money through Citibank, the US bank, which in turn made little effort to stop them.
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- - - - - - units of the Argentine financial group Mercado Abierto were used to launder Dollars 11.7m in drug money for Mexico's Juarez cartel between 1997 and 1998. The report says Mercado Abierto is owned by three former officials of the last military government in Argentina, including Aldo Luis Ducler, a former secretary of finance.
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Following Operation Casablanca in 1998, - - - - - , federal agents seized the Dollars 1.8m remaining in the two accounts at Citibank. Yet Citibank continued to do business with Mercado Abierto for another 17 months, allowing the bank to send a further Dollars 300m to the accounts.

The second case in the report deals with Federal Bank, another "shell bank" which investigators said was owned by Raul Moneta, a banker with close connections to former president Carlos Menem. According to the report, Federal Bank was used as a conduit for part of the Dollars 37m in bribes that computer manufacturer IBM agreed to pay Argentine officials in 1994 in order to win a Dollars 300m government contract.
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Mr Moneta denies any connection to Federal Bank and, for a time, Citibank sidestepped inquiries by Argentina's central bank about its owners. In what they call a "troubling mystery", investigators said Citibank officials misled the Argentine central bank over the real ownership of Federal Bank, perhaps in an effort to obscure Mr Moneta's role. Investigators raised the question of whether Citibank's judgment was coloured by its close business relationship with Mr Moneta in a separate holding group, CEI Citicorp.

The US Senate investigation has electrified Buenos Aires in recent weeks, where people have long suspected that corrupt officials spirited out of the country billions of dollars from the privatisation process during the past decade.
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Hearings on the cases begin in Washington today and several Citibank officials will testify tomorrow. Bank of America, Chase and Bank of New York were also cited in the report for failures in the supervision of their own correspondent banks. US gives details of Argentine cash-laundering Financial Times (London,England) March 1, 2001

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The committee's investigation found top US banks, including Chase Manhattan, Citicorp and Bank of America, had maintained correspondent accounts with foreign banks that were used to launder millions of dollars gained by illegal activities.

The investigation focused primarily on "shell banks", defined as banks that maintain no physical presence in any jurisdiction, and on "offshore banks", which do business only with customers outside the jurisdiction where they are licensed. Washington may act on 'shell banks' used for laundering Financial Times (London,England) March 7, 2001

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Switzerland's UBS and Citicorp of the US are among the financial giants determined to clamp down on the organised crime syndicates who deposit an estimated GBP 34.5 billion of dirty money in banks worldwide every year.
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The scale of economic crime and money laundering is staggering - according to reports up to GBP 5.5 trillion now passes through offshore jurisdictions.

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The Cayman Islands has just 30,000 citizens but nearly 600 banks - making it the fifth-largest banking centre in the world, ahead of Chicago, Rome, Frankfurt, Paris, Los Angeles and Dallas.WORLD BANKS IN BLITZ ON DIRTY MONEY Evening News (Edinburgh) October 30, 2000

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Banks in London handled Dollars 1.3bn (Pounds 89m) of transactions on behalf of the family and friends of Sani Abacha, the former Nigerian dictator, according to a money-laundering investigation by regulators.

The Financial Services Authority said yesterday it had found "significant weaknesses" in anti-money laundering controls at 15 banks.
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Its findings come eight months after the Nigerian government requested help in recovering some Dollars 1bn traced to the UK by investigators who wanted accounts frozen and documents seized at 15 London banks including Barclays, HSBC, Standard Chartered, Citigroup, Merrill Lynch and Australia & New Zealand Banking Group. City banks 'handled dictator's fortune' Financial Times (London,England) March 9, 2001

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British banks are to comb through tens of millions of old bank accounts in a renewed attempt to crack down on money launderers and terrorist financing. Banks comb accounts in laundering crackdown Financial Times (London,England) July 16, 2002

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Sanders, who is strongly opposed to the bailout and considers it corporate welfare, wants Congress to find out why U.S. taxpayers are being asked to provide billions of dollars to Brazil and how much of this money will be funneled to U.S. banks such as Citigroup, FleetBoston and J.P. Morgan Chase. These banks have about $25.6 billion in outstanding loans to Brazilian borrowers. U.S. taxpayers currently fund the IMF through a $37 billion line of credit.
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"This money is not going to significantly help the poor people of that country. The real winners in this situation are the large, profitable U.S. banks such as Citigroup that have made billions of dollars in risky investments in Brazil and now want to make sure their investments are repaid. This bailout represents an egregious form of corporate welfare that must be put to an end. Interestingly, these banks have made substantial campaign contributions to both political parties," the Congressman added.

Sanders noted that the neo-liberal policies of the IMF developed in the 1980's pushing countries towards unfettered free trade, privatization, and slashing social safety nets has been a disaster for Latin America and has contributed to increased global poverty throughout the world. At the same time that Latin America countries such as Brazil and Argentina followed these neo-liberal dictates imposed by the IMF, from 1980-2000, per capita income in Latin America grew at only one-tenth the rate of the previous two decades. Congressman Calls on Congress for Investigation U.S. Congressman Bernie Sanders CorpWatch <http://www.corpwatch.org/> August 15, 2002

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Other Concerns

There were a number of instances when Citibank officials displayed a tendency to be dishonest or ruthless in their dealings with customers. Some customers fought back.

The 1980s Wall Street Fraud

There was extensive scandal and fraud on Wall Street in the 1980's. Many of those responsible were prosecuted and imprisoned. There was some optimism that things would now improve. I have not gone back that far and do not know if any of Citigroup's ancestors were involved.

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Scarcely three months ago, with Mr Milken finally in jail and the worst of the S & L debacle apparently behind them, US prosecutors and regulators were declaring an end to the crime wave that seemed to grip America's financial markets in the late 1980s. View From Manhattan: More scandal is on the cards The Independent (London) September 7, 1991

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United Kingdom 1990

SNC, a UK company won a 10.8 million pound case (plus 4 million interest) alleging it had been misled and misinformed by Citicorp and its director in order to induce it to buy shares. The amount of damages was reduced on appeal because the appeal court used another system of costing.

COURT AWARDS SMITH NC POUNDS 10M OVER SALE OF FERRANTI SHARES The Guardian (London) March 26, 1992

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Misinformation by Citibank 1991

Citibank was accused of defrauding its customers in London. It went looking for high risk projects and offered customers loans. This proved to be a commercial mistake and policy was changed from headquarters. The policy proved a disaster and Citibank almost went under. Citibank was accused of misinforming in order to close these accounts down.

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1991
He (Crawley) claimed that several months later he was misled by the bank. - - - - - He maintained that the bank's true intention was to close his account down altogether.
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After marketing itself to a number of British entrepreneurs in the late Eighties, the bank decided to ''work out'', or rid itself of its exposure to a number of its customers.
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Frank Fabi, a ''work out'' specialist from New York, was sent to London and, according to an inside source, appears to have cast doubt within the bank as to whether Citicorp, Citibank's holding company, ought to be involved in the UK lending business at all.

Mr Crawley claimed, however, that he knew nothing about Mr Fabi's true role and that he was led to believe that by cross- collateralising assets he would get a measure of continuing support. Another four UK entrepreneurs are understood to have faced a similar situation. SFO is urged to probe Citibank; Failed property developer's lawyers allege fraud during bank's change of heart over high-risk loans The Independent (London) October 27, 1991

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2000
To achieve his goals, he (John Reed, retiring Citigroup CEO)- - - - - then sharply scaled down, a once formidable corporate banking business that nearly brought Citicorp to ruin in the early 1990's.
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He said his worst memories were of the real estate and international lending fiascos that left the bank teetering on collapse in the early 1990's. Reed Announces Plans to Step Down as Co-Chief of Citigroup The New York Times February 29, 2000

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Brokerage scandal in India 1992

Citibank strongly denied claims that it was involved in a $1.2 billion fraud. I do not know the outcome.

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A Bank of India report on the scandal, released in August, accused the Bombay branches of Citibank and Bank of America of irregularities in securities transactions. The scandal was exposed in April, sending Bombay share prices plummeting.

Ram Niwas Mirdha, the chairman of the parliamentary committee, has accused foreign banks of initiating the fraud. Citibank Denies India Fraud The New York Times November 18, 1992

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The chairman of Citicorp Insurance Brokers in London fraudulently doubled the 15% fees for a wide ranging insurance policy for the operators of the Panama Canal. This was not for his personal benefit. The scheme continued after Citicorp sold the business.

Lloyd's bars broker in insurance scam: Offender admitted skimming off double the agreed fees on contract The Ottawa Citizen December 24, 1997

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This page created January 2004 by Michael Wynne