November 8, 1999
Hearings Offer View Into Private Banking
Under Scrutiny: Citibank's Handling of High-Profile Foreigners' Accounts (July 27, 1999)
By JEFF GERTH
ASHINGTON -- In 1997,
federal bank examiners were pressing executives at Citibank Private
Bank to explain the source of more
than $50 million deposited into a secret account controlled by the president of Gabon, Omar Bongo, bank
and Senate documents show.
Existing Citibank profiles said
President Bongo's wealth was created as "a result of his position" and
"donations" from a French oil company doing business in the African
nation, according to the documents.
But a draft report by Democratic
Senate investigators found that in
responding to regulators, Citibank
produced a new profile showing other sources of the wealth -- information the report says is inaccurate and
This week, Citibank's handling of
private accounts like Bongo's
will be the subject of Senate hearings. The Senate Permanent Subcommittee on Investigations is examining the vulnerability of private
banking to money laundering.
In recent years, billions of dollars
have left fragile economies, from
Russia to Mexico, facilitated by
Western bankers. The Senate hearings, whose witnesses will include
Citibank executives and federal regulators, will offer the first detailed
public look at one of the most secretive parts of the global financial system, private banking, in which
wealthy customers are afforded extra discretion and care. The hearings
come at a time when previously acceptable practices in private banking are undergoing new scrutiny.
President Bongo's account is one
of several the Senate is investigating
that are tied to prominent foreign
political leaders or their families, in
Mexico, Venezuela, Nigeria and Pakistan as well as Gabon. Citibank's
private banking clients included
such controversial figures as the
sons of Gen. Sani Abacha, the Nigerian dictator; Raúl Salinas de Gortari,
the brother of Mexico's former president, and Asif Ali Zadari, the husband of former Prime Minister Benazir Bhutto of Pakistan.
In 1997, federal examiners were
looking at whether Bongo's
transactions should be reported as
suspicious. American law bans
banks from moving money earned
abroad from some crimes, like drug
trafficking, but not corruption. A central tenet of banking is to know your
customer, and banks are required to
report certain suspicious transactions to regulators.
Yet, the committee's staff report
notes, "there is currently no statutory, regulatory or industry guidance
of what is adequate due diligence."
So in 1997 the regulators felt reassured after Citibank officials told
them that Bongo's transactions
"are normal for the head of state of
an African country," according to
portions of the examiners' report
quoted by Senate investigators.
Bongo's profile had been revised in 1997 to say his wealth
stemmed primarily from government budgeted accounts and personal oil investments in Gabon and other
African countries. Senate investigators, however, found the explanations unverified and, in the first case,
"implausible and plainly contrary to
Gabon's budget policy and actual
spending," the draft report says.
Citibank documents show that
bank officials were aware of news
reports that Bongo was under
investigation for possibly accepting
bribes from French oil executives,
but they were reluctant to raise those
reports with Bongo or regulators, according to the draft report.
Bongo has not been charged
with any wrongdoing. A spokesman
for the Gabon Embassy in Washington declined to comment.
A Citibank spokesman said bank
officials believed that President Bongo's wealth came from legitimate
sources and that he had been "considered a distinguished head of government, supported and embraced
by U.S. presidents."
Meanwhile, Citibank has moved to
close Bongo's account, one of
40,000 at Citibank Private Bank.
Citibank estimates that only 350 of the
private bank's customers are public
officials or their families.
The closing of Bongo's account
follows moves by the bank's senior
management to tighten supervision
of sensitive accounts and to keep the
bank from being used for improper
John Reed, the chairman and co-chief executive of Citigroup, the parent of Citibank, is expected to tell the
Senate committee about Citibank's
new measures against money laundering and a policy adopted last year
to shy away from seeking out public
figures as private bank clients, according to people familiar with his
prepared testimony. He is also expected to discuss how regulators now
find significant improvements in the
private bank's internal controls.
The Citibank documents make
clear the potential pitfalls for one of
the world's most powerful and prestigious financial institutions. The
Senate inquiry is such a sensitive
matter for Citigroup that it hired two
former senior White House lawyers,
C. Boyden Gray of the Bush administration and Jane Sherburne of the
Clinton administration, to help the
bank prepare and respond.
One Senate investigator said Citibank had once lobbied to have a 1992
check for $1 million from Libya to a
Bongo account offshore unfrozen by
the United States government, contending that Citibank could lose its
business in Gabon if the payment
remained frozen by anti-terrorism
Mark Musi, the chief compliance officer for Citibank Private
Bank, said, "The Private Bank never
has had a strategy to link efforts to
get or retain a head of state's personal business in order to develop other
business in that country." He added
that Citibank's business in Gabon is
"extremely small" and unaffected
by the decision to close the Bongo
But Raymond Baker, a guest
scholar at the Brookings Institution
who is scheduled to testify at the
hearings, worries that when Western
banks help the powerful elite in less
developed countries to hide their
wealth -- some of which may be ill
gotten -- they undercut the efforts by
Western governments and entities
like the International Monetary
Fund to help the economies of those
"It is Western taxpayers who are
paying it out over the table to these
countries and the private banks who
take it back under the table,"
Baker said in an interview.
He is concerned that Western
banks that move corrupt money out
of poorer countries may aid the client in committing crimes like tax
evasion, illegal capital flight and
false trade invoicing, all of which fall
outside the reach of American money laundering statutes. But this
movement of money, Baker added, sucks $100 billion per year out of
In many ways, the interest in Citibank Private Bank stems from its
involvement with Salinas.
Reed is expected to tell the Senate
panel that the bank has learned a lot
from the Salinas affair, even though
it has never been cited for any legal
or regulatory violations.
Between 1992 and 1994 the bank
moved between $80 million and
$100 million through Salinas's
accounts, using extra confidential
methods that the General Accounting Office, the audit arm of Congress,
later found "disguised" the "origin,
destination and beneficial owner of
Reed is to tell the committee
that while Citibank failed then to
follow its own policy, it now has
much tougher rules.
The Senate panel turned up some
new details in the Salinas case, including transcripts of phone calls
between Citibank officials. After
Salinas's arrest in 1995 on murder
charges -- he was later convicted of
participating in the murder of his
former brother-in-law -- the initial
reaction of Citibank was to see
whether his money could be shifted
to Switzerland to make it more difficult for law enforcement officials to
discover his assets, according to Senate aides. That idea was rejected, the
aides said, when it was discovered
that bank records in London and the
United States, which could not be
destroyed, would point to the Swiss
The committee has also examined
the case of Zadari, a former
senator in Pakistan. Zadari, currently in jail on corruption charges,
had about $40 million in Citibank
Private Bank in Geneva.
The bank has not been accused of
wrongdoing, but internal Citibank
audits as well as audits by federal
bank examiners continually criticized managerial deficiencies in Citibank Private Bank in Switzerland,
Senate documents show.
Those audits and the investigation
of the Salinas money led Reed to
write to Citibank's board of directors
in November 1997.
"We live in a world where we have
to worry about 'how someone made
his/her money,' which did not used to
be an issue," he said, according to
portions of the letter excerpted in the
Democratic draft report. "Much that
we had done to keep Private Banking
private becomes 'wrong' in the current environment."
Another case study in the Senate
inquiry involves the accounts of two
of General Abacha's sons -- one of
whom, Muhammad, has just been
charged in Nigeria with the murder
of the wife of his father's leading
The New York private banker for
the Nigerian account -- the same
person who handled Bongo's account -- told staff investigators that
for three years he thought his clients
were Nigerian businessmen rather
than the sons of Nigeria's military
leader, the staff report says.
When General Abacha died unexpectedly in June 1998, the Nigerian
government began looking into his
family's wealth and billions of dollars of missing money.
With the corruption inquiry under way, Citibank
got a request from one of the general's sons, saying he urgently needed
$39 million from the London account,
records show. But the money was in
a time deposit that could not be redeemed for a while without a financial penalty, the staff report says.
Citibank had long accommodated
the Abacha family by setting up accounts with secret names like Gelsobella and Chinquinto. So the private
bank found a way to immediately
transfer the $39 million and avoid the
penalty, documents show.
Citibank records one month later
say the transfer was meant to be the
first step in the closing of the account
by the client. But last March, before
the account could be closed, a London court issued an order in a civil
suit freezing all accounts related to
Citigroup's lawyers have argued
that the Senate committee is on
shaky jurisdictional grounds because American money laundering
statutes cover only proceeds of activities in foreign countries that fall
under three categories: certain drug
crimes, certain violent crimes, and
fraud by or against a foreign bank,
according to a letter last month to
the committee from Gray.
The letter says that the Democratic staff believes that money in the
accounts of Bongo, General Abacha's sons and Jaime Lusinchi, a
former president of Venezuela, may
have been "derived from corruption
or other improper acts against a
foreign government." Even if true,
Gray says in the letter, those
offenses do not constitute crimes in
the United States and thus fall outside the committee's jurisdiction.