Citigroup became the latest in a series of major banks to be reprimanded for failing to adhere to US banking legislation. The US Federal Reserve censured the firm for weak money laundering controls and failure to comply with US regulations. The Reserve cited subpar compliance with the Bank Secrecy Act, a key US law governing reporting of suspicious transfers.
Banks and other financial institutions are required under US law to report any transaction over $10,000. They also must monitor and inform authorities of suspicious activity by individuals attempting to avoid detection. The Federal Reserve said that Citigroup “lacked effective systems of governance and internal controls”, noting that Citigroup had failed to “adequately oversee” its banks’ anti-money laundering (AML) programs.
US law states that the actions of a financial institution that conducts business in the US, as well as those of its foreign and domestic subsidiaries, are subject to the Bank Secrecy Act (BSA) and US money-laundering legislation. For a transnational giant like Citigroup, this means effectively overseeing every bank and financial institution it operates globally.
Foreign operations of banks have come under increased scrutiny in the US in the past year, and Citigroup has good reason to adhere to the Federal Reserve’s demands: failure to do so could cost the firm billions. In January, JP Morgan Chase was cited for its weak money laundering protections. HSBC paid $1.9 billion in December 2012 after the Justice Department determined the bank had laundered over $850 for Mexican and Colombian drug cartels.
Citigroup has two months to submit a comprehensive plan to improve oversight of its operations, and three months to submit a company-wide BSA/AML compliance program. The report will include recommendations on improving the structure and operation of its compliance program. Citigroup must submit a final plan, based on the BSA/AML Report and its recommendations, within four months.