* U.S. regulator accused Citi of lapses
* Citi agrees to improve compliance
* Citi will not pay penalty as part of agreement
(Rewrites, adds background, additional byline)
By Dave Clarke and Carrick Mollenkamp
April 5 Citigroup, one of the world's biggest
banks, had major lapses in its anti-money laundering systems
that are supposed to police the flow of shadowy money, a U.S.
bank regulator said.
The Comptroller of the Currency, which regulates national
banks, said on Thursday that Citigroup Inc's Citibank had
fallen short in establishing and maintaining programs meant to
identify money laundering and other improper flows of money.
Under an agreement with the OCC, the bank will have to
improve its anti-money laundering operations but will not pay a
monetary penalty. Citi did not admit or deny any wrongdoing.
There has been an increased effort by federal and state
regulators to crack down on shadowy money moving entering the
U.S. banking system. Citigroup is the fourth big global bank to
be hit in the regulatory crackdown over the past two years.
The OCC specifically cited a weakness in Citigroup's
so-called remote deposit capture business. That business
typically enables banks to process deposits from foreign banks
seeking access to the U.S. banking system.
Those deposits can be transferred into a bank via large
volumes of traveler's checks.
Citi informed the OCC that it had found compliance problems
in this line of business dating back to 2006, according to the
consent order released on Thursday.
As part of the agreement with the OCC, Citi will have to
hire an independent consultant to review bank records and
determine whether "suspicious activity was timely identified by
"Many of the issues highlighted in the OCC's order have
already been remediated or are in the process of being
remediated," the bank said in a statement. "Furthermore, we are
developing a plan to address the remaining OCC requirements."
The order also cites problems in Citigroup's correspondent
This function, where a bank acts as an agent of a foreign
bank to provide services, h as long been seen as a weak spot in
the U.S. banking system as smaller, foreign banks often seek
access to the U.S. financial system through this business.
A Senate investigative panel, which has identified numerous
ways in which illicit funds move globally, in 2001 issued a
report specifically targeting gaps in correspondent banking.
That report found that "U.S. banks, through the
correspondent accounts they provide to foreign banks, have
become conduits for dirty money flowing into the American
In recent years regulators and law enforcement officials
have focused on money laundering problems at other large banks.
For instance, the U.S. unit of HSBC Holdings Plc,
ABN Amro Holding NV and Wachovia Corp all were fined or
reprimanded in 2010 by federal law-enforcement and bank
regulators for lapses in anti-money laundering systems.
In 2009 and 2010, Barclays Plc, Lloyds Banking
Group and Credit Suisse Group agreed to
settlements totaling more than $1 billion as part of a probe
into aiding sanctioned countries, banks or other enterprises.
The issue has also caught the attention of Congress.
A U.S. Senate panel is investigating HSBC and a hearing by
the Senate Permanent Subcommittee on Investigations could occur
later this year.
That investigation could extend to other banks or gaps in
the U.S. regulatory system, according to a person familiar with
the Senate probe. It is not known if Citigroup is a part of that
investigation. HSBC is cooperating with the probe.
(Reporting By Dave Clarke in Washington and Carrick Mollenkamp
in New York; Editing by Gerald E. McCormick, John Wallace and