On Wednesday 15th October the Mexican regulator, CNBV, revealed it had issued a $2.2m fine against Citigroup's Banco Nacional de Mexico, for failing to prevent an alleged fraud against the bank by a client, oil-services firm Oceanografía.
Citi discovered the fraud as a result of an investigation conducted by an outside law firm into Banamex, following the numerous problems the unit suffered in 2013-2014. In late April 2014, Citi discovered approximately US $400m in bad loans made from Banamex to Oceanografia S.A de C.V (a Mexican oil-services company).
This news comes the day after Citigroup released a statement (on Tuesday 14th October), stating that the bank had discovered illegal conduct in Banco Nacional de Mexico's (a Mexican subsidiary of Citigroup Inc and referred to as Banamex) security unit, including: a fraud in the range of $15m, the unauthorized providing of security services to outside parties and the use of intercepted communications. This latest fraud is reported to have related to expense claims submitted to the bank by the security unit of Banamex. Banamex is accused of, inter alia, overcharging vendors and taking kickbacks.
Citi stated in Tuesday's press release that it has notified and is cooperating with law enforcement agencies and regulators regarding this matter in the US and Mexico.
Shane Gleghorn, head of Disputes and Investigations at Taylor Wessing gives his views on these developments:
"This is another example of US banks with foreign operations finding themselves exposed to a regulatory double-hit. First, the foreign regulator (in this instance CNBV) levies a fine against in relation to the conduct of the Mexican subsidiary and then the bank faces civil and criminal investigations in its own jurisdiction. Given that the US Securities and Exchange Commission and Department of Justice are still conducting their investigations into the fraud relating to Citibank's Mexico operations earlier this year, these latest revelations of illegal conduct within Banamex will no doubt be added to the mix, which almost certainly will result in sanctions from the US regulators. In light of recent sanctions imposed by the US regulators upon financial institutions, it is likely that the fines (and other sanctions) will be substantial."