CORRECTED-UPDATE 3-U.S., Mexico probe Citi over money laundering law compliance

Mon Mar 3, 2014 2:35pm EST

(Corrects headline to show probe is over legal compliance)
    March 3 (Reuters) - A federal grand jury is probing
Citigroup Inc, including its Banamex USA affiliate, over
compliance with the U.S. Bank Secrecy Act and anti-money
laundering requirements, the company said.
    In an annual filing on Monday with the U.S. Securities and
Exchange Commission, the company said the probe includes
subpoenas from the U.S. Attorney's Office for the District of
Massachusetts.
    The company also said Banamex USA had received a subpoena
from the U.S. Federal Deposit Insurance Corp. While the U.S.
attorney may bring criminal charges, the FDIC is a civil agency.
    The criminal probe follows other problems that have surfaced
with Banamex, which operates Citigroup's largest single consumer
bank outside of the United States and has been portrayed by the
company as a model of its global strategy. 
    Separately, Citigroup disclosed it had received a grand jury
subpoena seeking information about two mortgage securities that
were issued in the middle of 2007. 
    It is the first time the bank has raised the prospect of
involvement in a criminal case concerning the sale of mortgage
bonds prior to the 2008 financial crisis. Reuters had reported
in December that U.S. authorities were preparing civil fraud
charges against Citigroup over the sale of flawed mortgage
securities. 
    The bank also said on Monday it had received several 
subpoenas and requests for information from several state
attorneys general and the SEC about its mortgage bond business.
    
    MEXICAN INVESTIGATION
    Mexico's banking regulator said on Monday it is also
investigating whether Banamex committed crimes or flouted
regulations.
    "Inside Banamex we are looking at the documentation that
they provided and the operation of the whole bank to determine
these possible crimes or deviations from the regulations," Jaime
Gonzalez, President of the Comision Nacional Bancaria y de
Valores (CNBV), said in an interview on Mexico's Radio Formula.
    Gonzalez said he hoped to have conclusions from the
investigation in two to three weeks.    
    Citigroup disclosed on Friday that it had discovered at
least $400 million in fraudulent loans in its Banamex subsidiary
in Mexico and said employees might have been involved in the
apparent crime. 
    Law enforcers from the Mexican Attorney General's office and
from the U.S. Federal Bureau of Investigation and Securities and
Exchange Commission are investigating the transactions, people
familiar with the probes have said. 
    Banamex made the loans to Mexican oil services company
Oceanografia on the basis of payments due for 
services provided to Mexican state-owned oil company Pemex.
 
    But Citigroup said it could not validate that Pemex owed
$400 million to Oceanografia, or more than two-thirds of the
invoices it had used as collateral for its loans.
    In the third quarter of 2013 problems with about $300
million of loans that Banamex had made to three Mexican
homebuilders prompted Citigroup to book reserves for expected
losses. 
    Citigroup Chief Executive Michael Corbat called the incident
a "despicable crime" when it was first disclosed and said then
the bank believes it was an isolated episode. He also said that
criminal actions by Mexican authorities might allow Citigroup to
recover damages.
    Citigroup is the third-largest U.S. bank by assets. The
company views its international business as a competitive
advantage over other big banks in the United States.

 (Reporting by David Henry and Jonathan Stempel in New York,
Christine Murray in Mexico City and Aruna Viswanatha in
Washington; Editing by Lisa Von Ahn and Sofina Mirza-Reid)
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