Fed to Citi: Improve Anti-Money Laundering Controls

By FOXBusiness

Citigroup (NYSE:C) received another slap on its wrists for lax money-laundering controls on Tuesday as the Federal Reserve became the latest regulator to order the global banking giant to improve its oversight of anti-money laundering compliance.

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The enforcement action comes after British banking giant HSBC (NYSE:HBC) was slapped with a massive $1.92 billion penalty by U.S. regulators to settle charges it gave drug lords, terrorists and other shady characters access to the banking system.

The consent order from the Fed cited 2012 actions by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. that knocked Citi for gaps in the bank’s money-laundering standards.

The Fed order represents an enforcement action against the bank-holding company of Citigroup, whereas the OCC order targeted the lender's primary U.S. depository institution and the FDIC action hit its Banamex subsidiary.

None of the orders, including the one announced on Tuesday, imposed monetary fines on Citi, leading some to criticize U.S. regulators for being too soft on the bank.

"When the federal regulators fail to take a tough stand against banks that regularly and repeatedly violate anti-money laundering regulations, they enable and encourage such unlawful conduct," said Notre Dame law professor Jimmy Gurule, a former undersecretary for enforcement at the Treasury Department. "Perhaps lax federal regulators are part of the problem.”

The Fed declined to comment on the criticism.

However, the Citi action marks the Fed's third anti money-laundering order against a big bank since December 2012, including a civil penalty of $165 million on HSBC and a pair of cease and desist orders against J.P. Morgan Chase (NYSE:JPM) in January.

As part of the latest action, Citi must submit an acceptable written plan within 60 days detailing the bank’s efforts to bolster compliance with Bank Secrecy Act/Anti-Money Laundering (BSA/AML).

Citi also agreed to complete within 90 days a review of the effectiveness of its firm-wide compliance program as well as quarterly progress reports.

“Citigroup lacked effective systems of governance and internal controls to adequately oversee the activities of the banks with respect to legal, compliance, and reputational risk related to the banks’ respective BSA/AML compliance programs,” the Fed said in the order, citing the OCC and FDIC findings.

In April 2012, the OCC said it found that Citi and its Mexican subsidiary Banamex had “deficiencies” in their compliance program.

The Fed said Citi neither admits nor denies findings under the order and noted Citi “continues to implement an effective firm-wide compliance risk management program.”

In an emailed statement, Citi said it has made “substantial progress in strengthening” its BSA/AML compliance program and “addressing legacy AML risks in a comprehensive manner across products, business lines and geographies.”

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

Shares of New York-based Citi had little response to the news and were recently trading up 0.38% to $44.66. Citi's shares have rallied almost 13% year-to-date.