Jun 29 2009 Brett Wolf
Japan's Financial Services Agency has targeted Citigroup Inc's Citibank Japan Ltd with an enforcement action aimed at punishing the bank for alleged anti-money laundering lapses. The FSA said that there were "fundamental problems" with CJL's compliance program and ordered it to suspend all sales operations in its retail banking division for one month.
"Control systems necessary for the detection, monitoring, and follow-up of suspicious transactions have not been developed. Moreover, it is found that procedures to control any dealing with anti-social forces have not been developed," the FSA order states, suggesting that CJL's AML regime is not capable of detecting and reporting transactions that involve organized crime groups.
The FSA ordered CJL to suspend its retail banking division's sales activities between July 15 and August 14. It added, however, that CJL need not turn away unsolicited customers who approach the bank to purchase its products.
Sweeping changes demanded
The enforcement action also orders CJL to "fundamentally review and restructure" its "current governance, internal control and business management system". Specifically, the FSA ordered CJL to take the following steps:
• Clarify the business attitude of the board of directors and management committee towards the establishment and enhancement of governance and internal control systems.
• Develop and enhance a system for accurate execution of the obligation to make notification of suspicious transactions including money laundering; and, establish a system for the control, monitoring, cancellation, etc., of transactions, etc., subject to notification.
• Ensure a thorough understanding of, and compliance to, laws and regulations and other rules by officers and employees and foster and improve awareness of compliance with laws and regulations.
• Restructure the system necessary for ensuring the effectiveness of internal control functions, review methods, the frequency, etc., of audits, and conduct follow-ups after the audits.
• Investigate the causes why the improvement plan that was submitted to the FSA in response to the FSA's previous order on September 17, 2004 to improve business operations was not implemented appropriately and clarify where the responsibility lies, including with management.
The September 2004 order demanded that Citibank shutter its private banking arm, which allegedly engaged in "extremely inappropriate transactions". It also required that the bank take a slew of remedial actions aimed at bolstering its AML regime.
CJL had better provide a good explanation as to why its remedial plan "was not implemented appropriately". At present, Citigroup is selling-off some of its Japan-based units as part of an effort to recover from toxic asset-related losses. It is not clear whether those sales would be affected if CJL fails to provide an adequate justification for its purported failure.
Citibank's response
In a statement, Citibank Japan said it "takes this administrative action very seriously and is deeply apologetic for the issues insufficiently resolved, including as part of its 2004 [order]". The bank said it "is committed to focus all necessary resources to implement every necessary measure to prevent future occurrence".
It added: "Since an initial incident was first identified and reported voluntarily to the FSA, Citibank Japan has subsequently been cooperating with the FSA and has already begun to take actions to address issues raised."
When contacted by Complinet, a Citigroup spokesman reiterated that the bank "preemptively reported these matters" to the FSA. He cited concerns that the mainstream press has not reported this purported fact.
