US senate panel grills Citibank over laundering

WASHINGTON - Banking giant Citibank has come under fire from a senior US lawmaker over accounts it held for two offshore banks linked by an ongoing Senate probe to money laundering and other crimes.

"Citibank obviously made serious mistakes and obviously did not have adequate anti-money laundering procedures in place," Michigan Senator Carl Levin, the ranking Democrat on the Senate Investigations subcommittee, told a hearing on Friday.

The panel's Democratic staff said in a report last month that so-called correspondent accounts, which let foreign banks use US banks' services such as wire transfers and check clearing, were a "significant gateway" for money launderers to move their ill-gotten gains through the US financial system.

They criticized major US banks, including Citibank, Bank of America, Chase Manhattan and Bank of New York, for being too quick to open accounts for shadowy offshore banks, too lax in monitoring them and too slow to close them down even when problems became apparent.

The investigators said a correspondent account held at Citibank by MA Bank, a unit of Argentine financial group Mercado Abierto, was used to launder $US7.7 million ($NZ17.96 million) in drug money for Mexico's Juarez cartel between 1997 and 1998.

Although the US Government filed a warrant seeking to attach those funds in May 1998, Citibank, the commercial banking arm of financial conglomerate Citigroup, did not immediately review the account and it remained open until March 2000. In the interim, $US302 million moved through it.

"There was a breakdown in our internal communications. It's an embarrassment and it's something that we have since corrected," Jorge Bermudez, executive vice-president and head of e-business at Citibank, told the subcommittee.

The bank has now created a centralized unit in New York to process all such warrants, enter them in a central database and send those that raise suspicions to its dedicated anti-money laundering unit in Florida, he said.

The Senate report also said Citibank's partnership with Argentine investment group Grupo Moneta in a local holding company may have "coloured" its judgment in administering an account for an offshore bank owned by the group, Federal Bank.

The bank was used to move $US1 million of some $US21 million US computer firm International Business Machines Corp allegedly paid in bribes to secure a government contract in 1994, the report said.

The investigators questioned whether Citibank had deliberately misled the Argentine Central Bank when asked in 1998 for information on Federal Bank's ownership structure.

Despite having documents in its files stating Federal Bank was owned by Grupo Moneta, Citibank replied that "our records contain no information that would enable us to determine the identity of shareholders in the referenced bank," they said.

Carlos Fedrigotti, the president of Citibank Argentina, told the subcommittee on Friday the letter was "legally correct and accurate, but it was incomplete."

Citibank did eventually provide the information it had
to the central bank, but should have done so in the first instance, he said.

"There's no way that I can figure out any interpretation which would say that that was an honest response," Levin said.

"Your bank wrote a letter which is false. You can say here it was accurate, but there is no way that any fair reading of your letter ... can be described as anything other than false."

The Senate report suggested that Congress ban US banks from opening correspondent accounts for so-called "shell" banks, which have no physical presence anywhere, and tighten due diligence requirements for dealings with offshore banks and other institutions based in secretive financial havens.

Levin has said he will introduce legislation soon to implement those recommendations, describing the banking industry's own nascent efforts to deal with the issue as "slow, incomplete and not industry wide."