March 26, 2013 / 3:02 PM / 6 years ago

Fed orders Citigroup to improve money laundering checks

(Reuters) - The Federal Reserve has ordered Citigroup Inc to better police for the risk of money laundering, part of a broad U.S. regulatory crackdown on the potential for illicit money flows.

A Citi sign is seen at the Citigroup stall on the floor of the New York Stock Exchange, October 16, 2012. REUTERS/Brendan McDermid

The Fed told Citigroup’s board to submit a plan within 60 days to improve its oversight of companywide anti-money laundering compliance, according to a consent order dated March 21, but only made public on Tuesday.

The order expands upon similar directives aimed at several Citigroup units in 2012.

The board plan should include funding personnel and resources based on the risks of different units - policies that instill a “proactive approach” to identifying and managing money-laundering risks - and measures to ensure employees adhere to those compliance policies, the Fed said.

The Fed also ordered Citigroup to submit a plan to improve its compliance operations that deal with anti-money laundering and sanctions requirements, and complete a review of how effective its firmwide compliance program is within 90 days.

Citigroup is expected to submit progress reports each quarter detailing the actions it takes to comply with the order, the Fed said.

Citigroup said in a statement that it had made “substantial progress” in strengthening its compliance program and addressing risks throughout the company.

“Citi continues to take the appropriate steps to address remaining requirements and build a strong and sustainable program,” the bank said.

U.S. authorities have stepped up enforcement of anti-money laundering laws in an effort to clamp down on conduct ranging from drug trafficking to terrorism, and have entered into cease and desist orders with top banks including JPMorgan Chase and others related to weak internal controls.

In December, HSBC Holdings Plc agreed to pay a record $1.9 billion, in part to resolve charges that it failed to detect money from drug trafficking which was flowing from Mexico into the United States.

Citibank, Citigroup’s consumer and commercial bank, entered into a consent order with the Office of the U.S. Comptroller of the Currency in April 2012 to fix problems with its compliance with the Bank Secrecy Act, the law that requires banks to report suspicious activity to regulators.

Last August, the FDIC and the California Department of Financial Institutions also ordered the U.S. arm of Citigroup’s Mexican subsidiary, Banamex USA, to address problems with its compliance program.

The Fed did not specifically say how much Citi has done to fix the issues raised by the previous orders. It said it is requiring the bank to “continue ongoing enhancements,” and said that last year’s settlements showed that Citigroup also needed to address compliance weaknesses at the holding company level.

“As evidenced by the deficiencies ... that led to the issuance of the OCC and FDIC consent orders ... Citigroup lacked effective systems of governance and internal controls to adequately oversee the activities of the Banks,” the Fed said in its order.

The Fed did not give specific examples of problems at Citigroup.

Citi neither admitted nor denied the Fed’s findings under the order, the U.S. central bank said.

Citigroup’s global reach highlights its potential risks for being used to launder money.

In its annual report filed in February, for example, Citigroup disclosed that some of its Citibank branches and ATMs in the United Arab Emirates, Bahrain, Lebanon and Venezuela are required to participate in local government-run clearing and exchange networks that include banks that the U.S. government has sanctioned for ties to Iran.

The bank said it was pursuing licenses for the activity from the Treasury Department in order to avoid violating U.S. sanctions laws.

Regulators have said that generally, they plan to investigate individuals who contribute to anti-money laundering compliance failures at financial institutions.

Reporting by Aruna Viswanatha and David Henry; Editing by Gary Crosse, Andrew Hay and Tim Dobbyn

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