Citigroup faces criminal probe for fraud at Mexico unit: source

Thu Apr 3, 2014 2:37pm EDT

A man walks in front of a Banamex advertisement in Mexico City February 28, 2014. REUTERS/Edgard Garrido

A man walks in front of a Banamex advertisement in Mexico City February 28, 2014.

Credit: Reuters/Edgard Garrido

(Reuters) - Federal authorities have opened a criminal investigation into a $400 million fraud involving Citigroup's Mexican unit, according to a person familiar with the matter.

Citigroup disclosed in February it had discovered at least $400 million in fraudulent loans in its Mexico subsidiary, Banco Nacional de Mexico, known as Banamex, and said employees may have been in on the crime.

The bad loans were made to Mexican oil services company Oceanografia, a contractor for Mexican state-owned oil company Pemex.

The New York Times first reported the criminal inquiry.

The investigation, overseen by the FBI and prosecutors from the United States attorney's office in Manhattan, is focusing on whether holes in Citigroup's internal controls contributed to the fraud in Mexico, the newspaper reported. (link.reuters.com/gat28v)

The FBI and prosecutors are questioning whether Citigroup was equal parts victim and enabler, the newspaper said.

Representatives of the U.S. attorney's office in Manhattan and Citigroup declined comment. The FBI did not immediately respond to a request for comment.

Reuters reported in February that the U.S. Federal Bureau of Investigation was aware of Citigroup's loan losses due to fraud by a Mexican company and was monitoring the situation for possible criminal activity.

Banamex fired two bond traders after uncovering rogue trading last year, two sources close to the matter told Reuters on Tuesday, raising fresh questions over what controls the troubled unit had in place to police employees.

(Reporting by Supriya Kurane in Bangalore and Aruna Viswanatha in Washington; Editing by Gopakumar Warrier and Leslie Adler)