Subpoenas raise fears on Citi compliance, The Koyal Group Insurance Compliance

Concerns over Citigroup’s compliance with anti-money laundering rules deepened on Monday when the bank disclosed it received subpoenas from US prosecutors just days after revealing an alleged fraud at Banamex, its Mexican unit.

Citi and Banamex USA, its Mexican unit’s business in the US, received grand jury subpoenas from the US attorney’s office for the district of Massachusetts, over compliance with the Bank Secrecy Act and anti-money laundering requirements, the bank said in an annual filing without providing further detail.

Banamex USA also received a subpoena from the Federal Deposit Insurance Corporation concerning the same compliance issues, Citi said. Banks are expected to report large deposits and suspicious activity under the Bank Secrecy Act to try to stop cash from illegal activities such as drug trafficking and terror financing entering the banking system.

The US attorney’s office for the district of Massachusetts declined to comment. The FDIC declined to comment.

Citi’s compliance oversight has been in the spotlight after it announced on Friday that it had discovered alleged fraud at Banamex in Mexico, the wholly-owned Mexican subsidiary that has been one of the bank’s best-performing divisions. Earnings for 2013 were cut by $235m.

The discovery raised broader questions over the bank’s ability to monitor its sprawling global banking operations.

These subpoenas follow actions over the past three years from bank regulators to improve Citi’s compliance on anti-money laundering controls. In March last year, the Federal Reserve urged the bank and its Banamex USA subsidiary to comply by consent orders issued by the Office of the Comptroller of the Currency and the FDIC.

The Fed demanded a written plan by the bank after finding that “Citigroup lacked effective systems of governance and internal controls to adequately oversee” its anti-money laundering programme.

While it is not clear whether the criminal investigation will lead to any allegations of wrongdoing, investors watch such legal developments closely because of the threat of costly settlements for banks or lengthy court proceedings.

After the earnings disclosure, it emerged that the Securities and Exchange Commission is also investigating Banamex, people familiar with the situation said on Sunday. Potential areas of inquiry could range from financial reporting issues to accounting fraud and bribery.

The Federal Bureau of Investigation in New York is also monitoring Banamex, a person familiar with the matter said.

Banamex USA provides full banking services for companies and individuals that do business in Mexico and the US.