Citigroup: Employees Responsible for $400M Fraud Will Be Held Accountable


The management of Citigroup Inc. said on Friday that employees responsible for the processing of around $400 million fraudulent loans will be held accountable and if proven guilty be charged according to company policies and even the law. This was announced by Citigroup CEO Michael Corbat in light of the recently discovered fraudulent loans extended by Citigroup’s Mexico subsidiary to a Mexican company.

Corbat called this episode a “despicable crime” but also believes this was an isolated incident. The American multinational financial services company with headquarters at Manhattan, New York City wrote-down the loan and has its 2013 profit decreased by $235 million to $13.67 billion because of the incident.

Based on investigations, the bad loans were extended to Oceanografia, a Mexican oil services company. Oceanografia is also the contractor for Pemex, the Mexican state-owned oil company and 97 percent of the revenue of Oceanografia comes from Pemex. Citgroup’s Mexican subsidiary Banco Nacional de Mexico (Banamex) provided the loans to Oceanografia using the expected payments from Pemex as collaterals.

Auditors and investigators from Banamex soon discovered that the invoices issued by Oceanografia to Pemex as loan collaterals were bogus. This resulted in Citigroup writing-off about $400 million from its accounting books just because of the fake invoices.

Prior to the discovery of Citigroup, Pemex suspended Oceanografia last February 11 and that all its existing government contracts were likewise placed on hold. Oceanografia was given 21 months and 12 days suspension pending the results of the Mexican government investigation. The office of Mexico’s attorney general said that they are investigating Oceanografia based on allegations that it has committed a crime and afterwards all its assets were seized by the government. Mexican authorities also assigned an administrator to oversee whatever can be salvaged from the assets of the company.

The suspension of Oceanografia by the Mexican government triggered Citigroup to launch its own investigation in order to determine its own exposure with the questioned company. Corbat also mentioned about the possibility of initiating legal actions just to recover damages from the bogus loan transactions.

Based on public records, Oceanografia was awarded with almost $3 billion worth of projects totaling to 100 contracts in a span of ten years beginning 2003. Last 2012, Mexico’s own Federal Audit Office castigated Pemex for failure to investigate on what seemed to be irregularities in its existing contract with Oceanografia as well as overpayment for works rendered.

Corbat in a memo provided to the Citigroup employees assured them that justice will be served and whoever is involved will be held accountable. Based on bank estimates, Citigroup was able to validate at least $185 million of the $585 million loan collaterals extended to Oceanografia. This still leaves the $400 million in floating status however the bank later decided to charge the $400 million to the operating expenses in its previously announced fourth quarter performance report. In a similar announcement, Citigroup is still trying to determine if losses were also incurred for another $33 million loan made directly to Oceanografia.

Citigroup Inc. is the third largest bank in the U.S. by assets. The bank is also the world’s largest financial services network with presence in 140 countries and around 16,000 offices worldwide.

This latest incident that happened in Citigroup where around $400 million were lost due to fraudulent loans and those employees found responsible will be held accountable is a test to what a Citigroup spokeswoman has said previously that the bank “has made substantial progress in strengthening” its capability to prevent fraud and money laundering.

By Roberto I. Belda


The Wall Street Journal
The New York Times