CORRECTED-UPDATE 3-U.S., Mexico probe Citi over money laundering law compliance

The Koyal Group Insurance Compliance

(Corrects headline to show probe is over legal compliance)

March 3 (Reuters) - A federal grand jury is probing Citigroup Inc, including its Banamex USA affiliate, over compliance with the U.S. Bank Secrecy Act and anti-money laundering requirements, the company said.

 In an annual filing on Monday with the U.S. Securities and Exchange Commission, the company said the probe includes subpoenas from the U.S. Attorney's Office for the District of Massachusetts.

The company also said Banamex USA had received a subpoena from the U.S. Federal Deposit Insurance Corp. While the U.S. attorney may bring criminal charges, the FDIC is a civil agency.

The criminal probe follows other problems that have surfaced with Banamex, which operates Citigroup's largest single consumer bank outside of the United States and has been portrayed by the company as a model of its global strategy.

Separately, Citigroup disclosed it had received a grand jury subpoena seeking information about two mortgage securities that were issued in the middle of 2007.

It is the first time the bank has raised the prospect of involvement in a criminal case concerning the sale of mortgage bonds prior to the 2008 financial crisis. Reuters had reported in December that U.S. authorities were preparing civil fraud charges against Citigroup over the sale of flawed mortgage securities.

The bank also said on Monday it had received several  subpoenas and requests for information from several state attorneys general and the SEC about its mortgage bond business.

  

MEXICAN INVESTIGATION

Mexico's banking regulator said on Monday it is also investigating whether Banamex committed crimes or flouted regulations.

"Inside Banamex we are looking at the documentation that they provided and the operation of the whole bank to determine these possible crimes or deviations from the regulations," Jaime Gonzalez, President of the Comision Nacional Bancaria y de Valores (CNBV), said in an interview on Mexico's Radio Formula.

Gonzalez said he hoped to have conclusions from the investigation in two to three weeks.

Citigroup disclosed on Friday that it had discovered at least $400 million in fraudulent loans in its Banamex subsidiary in Mexico and said employees might have been involved in the apparent crime.

Law enforcers from the Mexican Attorney General's office and from the U.S. Federal Bureau of Investigation and Securities and Exchange Commission are investigating the transactions, people familiar with the probes have said.

Banamex made the loans to Mexican oil services company Oceanografia on the basis of payments due for  services provided to Mexican state-owned oil company Pemex.

            But Citigroup said it could not validate that Pemex owed $400 million to Oceanografia, or more than two-thirds of the invoices it had used as collateral for its loans.

In the third quarter of 2013 problems with about $300 million of loans that Banamex had made to three Mexican homebuilders prompted Citigroup to book reserves for expected losses.

Citigroup Chief Executive Michael Corbat called the incident a "despicable crime" when it was first disclosed and said then the bank believes it was an isolated episode. He also said that criminal actions by Mexican authorities might allow Citigroup to recover damages.

Citigroup is the third-largest U.S. bank by assets. The company views its international business as a competitive advantage over other big banks in the United States.

(Reporting by David Henry and Jonathan Stempel in New York, Christine Murray in Mexico City and Aruna Viswanatha in Washington; Editing by Lisa Von Ahn and Sofina Mirza-Reid)

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.