Citigroup Is This Week's Wall Street Corporate Criminal

Citigroup has agreed to pay nearly a $100 million fine for massive violations in its Banamex USA subsidiary with regard to its (lack of) anti-money laundering monitoring. Banamex USA “admitted to criminal violations by willfully failing to maintain an effective anti-money-laundering” program. But, of course, by admitting to these criminal violations and paying this fine, Citigroup not only avoided criminal charges by the government but also receive a non-prosecution agreement. It’s a nice racket, isn’t it.

The Banamex USA subsidiary was part of Citigroup’s purchase of the large Mexican bank Banamex and focused primarily on remittances between the US and Mexico. With that purchase came a number of significant problems. In 2015, the chairman of Banamex was forced to “retire” after a wave of revelations about shoddy and illegal practices at the bank. The bank was defrauded of $400 million by a shady oil outfit and bank employees were also implicated in taking bribes and kickbacks. The problems at Banamex eventually led to the uncovering of the money laundering issues in the US subsidiary that was the subject of this enormous fine.

The lifeblood of any anti-money laundering operation is a simple system to track unusual movements of cash. Certain thresholds of activity are automatically flagged as well as activity that is outside the normal pattern of an account’s history. These transactions need to be investigated in order to determine whether a Suspicious Activity Report (SAR) needs to be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Department of the Treasury.

In a five year period between 2007 and 2012, Banamex systems flagged over 18,000 transactions that needed to be reviewed to determine if a SAR should be filed. But the bank conducted only 10 investigations that resulted in just six SAR reports being filed. One of the more egregious examples was an account involved in 1,400 transactions from 950 individual senders from over 40 states. Does that perhaps sound like a drug operation to you? According to Citigroup, no investigation was necessary and no SAR report was filed.

Part of the problem at Banamex USA was that there were only two employees in the whole anti-money laundering department. There was no possible way for those two people to investigate the over 3,500 flagged activities that occurred each year. And, as usual, when employees raised the problem of insufficient oversight, they were ignored by management.

The Banamex purchase was a winner for Citigroup as it was able to profit handsomely from the post-NAFTA growth in the Mexican economy and its burgeoning middle class. The fine will merely be considered the cost of doing business. It will not inhibit Citigroup from engaging in more criminal activity going forward. This is the first big financial industry case settled by the Sessions’ Justice Department and it signals that the big Wall Street banks will still be allowed to get away with just about anything.