Money Laundering Probe May End Citigroup’s Banamex USA Unit

Citigroup may wind down its Banamex USA operations as a part of a settlement with U.S. regulators amid allegations that the California-based unit has been beset by weak money laundering controls.

The Wall Street Journal reported yesterday (June 1) that regulators are not in fact demanding that the unit be shuttered, but Citi is “widely expected” to take that step amid ongoing talks with the Federal Deposit Insurance Corp. and the California Department of Business Oversight. The two regulatory bodies have been in discussions with Citi for over a month, and any settlement may not be finalized for several weeks, noted The Journal.

Banamex, owned by Citi since 2001, and with more than $1 billion in assets, facilitates money transfers across and beyond the southern U.S. border. The company has not turned a profit in several quarters.

Sources told The Journal that winding down the unit could take at least one year. In the meantime, regulators are gunning for Banamex to pay at least $100 million to settle the regulatory investigation.

The Journal reported that if the unit is indeed closed, the move would represent the “latest retreat by a big bank” from owning businesses that hand money moving into and out of emerging markets due to fears over money laundering – despite the lure of increased sales and operational scope.

Settling with the FDIC and California may not mark the end of Banamex’s investigatory saga. The company has received information requests for the Treasury Department’s financial crimes enforcement operations. There are also grand jury subpoenas from Massachusetts and a Justice Department Investigation in place. In the case of the latter, The Journal has reported that the investigation centers on whether Banamex failed to notify the government of suspicious banking activities that may have involved people suspected of being part of drug cartels.

The Banamex investigation dates back to 2012, when regulators, focused on laundering, ordered Banamex to increase staff and technology with an eye on catching fraud. Sources told The Journal that scrutiny focused on a services business that let people transfer money across borders without necessarily being Banamex customers. As a result, Citibank fired some top Banamex executives and closed some branches yet investors – yet still had not satisfied investigators’ concerns. Since 2012, the total assets at Banamex have shrunk from $1.4 billion to the present $1 billion and branch count from 11 to 3.

Citi is hardly alone in facing increased watchdog attention over cross-border transactions. Royal Bank of Canada, the largest Canadian bank, has shut down almost all of its Latin America based wealth management offices amid investigations of possible money laundering in three countries. Two British Banks, HSBC and Standard Chartered, have reined in some efforts in developing markets. And in the U.S., one key bank regulator, the Office of the Comptroller of the Currency, said it would be part of a program exploring how financial services firms should do business across borders. 

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