Federal Reserve has zeroed in on Citigroup Inc. (NYSE:C) to improve its money laundering controls. The regulatory authority said that the bank is lacking appropriate controls that can flag,report and block any dubious transactions. The enforcement action directed at Citigroup Inc. (NYSE:C) was issued today by the Federal Reserve . Citigroup had agreed to improve its compliance with Bank Secrecy Act and anti-money laundering law (BSA/AML) back in April 2012 following orders from Office of the Comptroller of the Currency. The consent order was issued concerning Citibank, National Association (Citibank NA) in April, later in August the FDIC and California Department of Financial Institutions issued a consent order with respect to Banamex USA (BUSA), a subsidiary of Citibank.
The latest order from Fed calls for continuation of improved anti-money laundering setups to be implemented across Citibank and its non-bank subsidiaries that were not included in the 2012 BSA/AML enforcement actions.. The order requires the bank to improve it compliance to Bank Secrecy Act and to have a system in place to report suspicious transactions above $10,000 to the respective regulatory authority.
Citi's board of directors is required to submit an action plan within sixty days of the consent order that details how the bank will improve its compliance risk management with regard to BSA/AML Requirements. The bank will have to cough up more money to improve compliance to the orders and to setup new systems and hire additional staff for the said purposes. Citi's compliance will likely be under scrutiny for a long period of time, the orders require quarterly progress reports from the bank as well. However the enforcement order from Fed has not brought forward any new findings or allegations, it is only meant to ensure the continuation of Citigroup's BSA/AML compliance risk management.
In repsonse to consent order issued today, Citi's spokesperson said that the bank has and will continue to comply with any remaining requirements of the BSA/AML compliance program.
“Citi has made substantial progress in strengthening its BSA/AML Compliance Program and addressing legacy AML risks in a comprehensive manner across products, business lines, and geographies. The issues raised by the FRB are based on the findings by the OCC and FDIC/CDFI last year. Citi continues to take the appropriate steps to address remaining requirements and build a strong and sustainable program.”
Citigroup Inc. (NYSE:C) was saved from being fined over its lax money laundering controls, a price that other big banks have had to pay in the past.
Last year, several large banks came under scrutiny from regulatory authorities over illegal transactions to post-sanctioned Iran. Standard Chartered paid two fines worth $322 million and $340 million over its non-compliance with US regulations on Iran, Libya, Myanmar, and Sudan. The largest fine ever was charged on HSBC Holdings plc (LON:HSBA) (NYSE:HBC), which required the British lender to pay $1.9 billion for allowing illegal transaction to Mexico and Iran. Several other banks have been fined in the past years over money laundering scandals. However none of the large US banks has come up in the list.
Citigroup Inc. (NYSE:C) is up 0.6 percent in trading today and has gained +14 percent YTD. The bank agreed to pay $730 million to settle a class action suit which alleged that the investors were misled by bank's disclosures.
Note: The article has been edited to reflect that the new order from Fed was only meant to ensure the continuation of BSA/AML Compliance Program in Citigroup, that has been in place since last year.