Credit: Shutterstock photoPutting an end to the regulatory probe over its three-branch Banamex (Banco Nacional de Mexico) USA subsidiary, Citigroup Inc.C has decided to shut down the unit. Notably, the closure follows on the agreement by Citigroup to pay $140 million as settlement to regulators over loopholes in its anti-money laundering ("AML") program.
The penalty amount imposed by the Federal Deposit Insurance Corp. includes $40 million to be paid to California's Department of Business Oversight as civil penalties. Notably, the fine has been imposed for violating regulations including the Bank Secrecy Act ("BSA").
"The institution failed to retain a qualified and knowledgeable BSA officer and sufficient staff, maintain adequate internal controls reasonably designed to detect and report illicit financial transactions and other suspicious activities, provide sufficient BSA training, and conduct effective independent testing," the FDIC said in the statement.
"Three years ago Banamex USA made a commitment to correct numerous weaknesses in its anti-money-laundering program," said Tom Dresslar, spokesman for the California regulatory agency. Mr. Dresslar said that over time the agency found "serious, sometimes new, problems."
Currently, Banamex USA has three branches each in Houston and San Antonio with headquarters in Century City, CA. As per the liquidation plan, Citigroup will shut down the Houston and San Antonio branches in October, while the Century City branch will be in operation till the winding down process comes to an end.
Background
The New York-based bank revealed in its latest annual filing that its compliance with Bank Secrecy Act and anti-money laundering laws are being probed by additional authorities and its subsidiary Banamex USA was not being spared.
Citigroup mentioned that several regulators including Financial Crimes Enforcement Network - a bureau of the U.S. Department of Treasury - and the California Department of Business Oversight have asked the bank for information related to BSA and AML issues.
Notably, last year, the company disclosed that Banamex USA had received grand jury subpoenas from the United States Attorney's Office for the District of Massachusetts and a subpoena from the Federal Deposit Insurance Corporation ("FDIC") regarding the company's policies, procedures and activities with respect to compliance with BSA and AML requirements.
The company stated that it was extending full co-operation to the investigators.
Based in California, Banamex USA is engaged in providing banking services to individuals and small businesses in the U.S. and Mexico. Citigroup took over Banamex USA with the acquisition of the Mexican bank, Banamex in 2001. However, the USA unit has been entangled in regulatory probes since the past few years.
Regulators had earlier identified that Citigroup had inadequacies over its AML compliance at Banamex USA. In 2012, FDIC and the California regulators filed a consent order asking Banamex USA to improve the processes of high-risk customer identification. In 2013, Citigroup entered into a consent order with the Federal Reserve to take steps to improve company-wide anti-money laundering compliance efforts.
Conclusion
Banks across the globe have been facing increasing scrutiny for their business practices. Many of the firms have paid billions of dollars as fines and compensation to settle lawsuits and probes. Many investors have lost their hard-earned money as a result of such business malpractices. Such settlements help restore their confidence in law-enforcement agencies. Moreover, it reduces the existing litigation burden of banks.
Recently, Citigroup has been ordered to refund roughly $700 million to nearly 8.8 million customers who were victimized by illegal credit card practices at its Global Consumer Banking ("GCB") unit. Notably, Consumer Financial Protection Bureau ("CFPB") and the Office of the Comptroller of the Currency ("OCC") have accused Citigroup of providing misleading information to customers related to cost and fees of various debt protection and advanced credit monitoring products.
During the financial crisis, many banks resorted to fraudulent practices. Weakness in the economy continues to induce banks like JPMorgan Chase & Co. JPM , The Goldman Sachs Group, Inc. GS and Deutsche Bank AG DB to engage in various misconducts, which eventually lead to nothing but legal fines.
Currently, Citigroup carries a Zacks Rank #2 (Buy).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
