MEXICO CITY – Citigroup Inc. (NYSE:C) is being investigated by U.S. authorities over an alleged fraud by its Mexican unit, Banco Nacional de Mexico, or Banamex. The bank says it has received subpoenas from the Federal Deposit Insurance Corp. and the U.S. Attorney’s Office for Massachusetts over issues of compliance with the Bank Secrecy Act and anti-money laundering rules.
In a statement sent to the U.S. Securities and Exchange Commission on Monday, Citigroup said Banamex had been notified of the probe and “Citigroup is cooperating fully with the inquiries.”
The subpoenas come after the bank, America’s third-largest by assets, disclosed Friday that it was cutting its Q4 and 2013 results by around $235 million after tax. The revision came after Citigroup investigated its transactions with a Mexican oil services company, Oceonagrafía S.A., and found $400 million in potentially fraudulent loans in one of the accounts.
Oceonagrafía had already been investigated by the Mexican Attorney General’s Office and the Comisión Nacional Bancaria y de Valores (Mexico’s Bank and Securities Commission, or CNBV). Jaime González Aguadé, president of the CNBV, said Monday that Banamex has already double-checked the operation. “We hope to have conclusions in three weeks,” he added.
Banamex granted the loans to Oceanografía for services to state-owned oil company Petróleos Mexicanos (Pemex). Several of the receipts were later found suspicious, and are pending a revision by Pemex's accountants.
“We believe this to be a money-laundering operation,” said Attorney General Jesús Murillo Karam. “Money laundering can start with the initial crime of fraud, but it does not stop there.”
Murillo Karam said no culprits have been found yet, but the investigation is far from over. Oceanografía's accounts have been frozen.
The attorney general also confirmed that Pemex will not stop production while the investigation is in progress.
The scandal broke less than a year after the U.S. Federal Reserve demanded Citigroup improve its anti-money laundering procedures and related internal audits.