Citigroup Fraud In Mexico Said To Be “One Off”; Suspect Questioned

Citigroup Inc (NYSE:C), the victim of a recent $400 million fraud in Mexico, said they are “fairly confident” the fraud was an isolated incident.

Citigroup Fraud In Mexico Said To Be "One Off"; Suspect Questioned

Isolated incident, says Citigroup

“The only customer where we saw any issues like this was in this one client relationship. So we’re fairly confident that this, in fact, is an isolated incident,” John Gerspach, Citigroup Inc (NYSE:C)’s chief financial officer, said at an industry conference on Monday.

$585 million in short term loans at issue

The issue stems from $585 million in short-term loans Citigroup Inc (NYSE:C) provided to Oceanografia S.A. de C.V. (OSA), a Mexican oil services company, through an accounts receivable financing program. OSA has been a key supplier to Petróleos Mexicanos (Pemex), the Mexican state-owned oil company.  When it was discovered that OSA was suspended from being awarded Mexican government contracts, both Cit and Pemex reviewed their credit exposure.  The review found that fraudulent receivables were placed on the books, upon which the loans were based.

Bank CFO: fraud didn’t uncover a fundamental weakness

The CFO’s remarks address concerns the fraud didn’t uncover a fundamental weakness in the third largest US bank’s risk control or accounting management procedures.  The incident, which is said to be a cause of embarrassment for first year Chief Executive Officer Michael Corbat, will result in the bank restating its fourth-quarter and full-year results by nearly $235 million.

FBI, SEC review situation as Mexican police are questioning a suspect

The incident is currently being reviewed by the Federal Bureau of Investigation, the Securities and Exchange Commission as the Mexican police investigation is said to have identified a suspect and is questioning the Citigroup Inc (NYSE:C) employee.

“I can assure you there will be accountability for those who perpetrated this despicable crime and any employee who enabled it, either through lax supervision, circumvention of our controls, or violating our Code of Conduct. All will be held equally responsible and we will make sure that the punishment sends a crystal clear message about the consequences of such actions,” Corbat said in a statement the day when the crime was originally uncovered.