November 10, 1999
Citigroup Head Concedes Laundering Controls Were Poor
Hearings Offer View Into Private Banking (Nov. 8, 1999)
Under Scrutiny: Citibank's Handling of High-Profile Foreigners' Accounts (July 27, 1999)
By JEFF GERTH
ASHINGTON -- The co-chairman of Citigroup testified before a Senate subcommittee Tuesday
that his bank had been slow to correct years of weak controls over
wealthy private accounts, and he lent
support to a proposal that would prohibit American banks from accepting corrupt deposits from abroad.
But the official, John S. Reed, who
is also a co-chief executive of Citigroup, the parent of Citibank, said
the bank had made wholesale
changes in its policies and culture
since 1997, to learn more about its
wealthiest customers and to prevent
them from laundering money
through the bank.
"There is a not pattern of us being
a dirty bank," he told the Senate
Permanent Subcommittee on Investigations, which opened hearings on
the vulnerability of private banking
The subcommittee, after having
obtained Citibank records, showed
how hundreds of millions of dollars
in questionable deposits had moved
through secret Citibank accounts
held by foreign leaders and their
The panel's ranking Democrat,
Senator Carl Levin of Michigan, who
initiated the inquiry, said Citibank's
inability to police itself required legislative action. "There were a lot of
self-adopted rules at the bank that
were ignored," Levin said.
Reed seemed to agree with
one of his proposals, to stop American banks from accepting the proceeds of corrupt acts abroad like
looting a country's treasury.
Presently, American laundering
laws bar financial institutions from
handling the proceeds from a narrow
group of crimes like drug trafficking,
kidnapping and bank fraud, but not
In questioning Reed, Levin
asked: "Do you think we should treat
bribes and looting government treasuries the same way we treat drug
Reed said, "I sure would."
The recent disclosures about the
extensive flow of money out of Russia through the Bank of New York
have spurred some in Congress to
broaden the definition of laundering
to include corruptly obtained money.
The Clinton administration has
proposed legislation that would expand the definition of laundering to
include the taking of corrupt money
from foreign customers. Deputy
Treasury Secretary Stuart E. Eizenstat said today that the proposals
would give the United States the ability to prosecute foreign officials who
tried to deposit illicit money here.
Senator Susan Collins, the Maine
Republican who is chairwoman of
the subcommittee, read from critical
internal Citibank audits from 1995 to
1997. She said a "systematic pattern
of deficiencies" made the bank vulnerable to laundering.
Reed acknowledged that
"there was not an acceptable level of
standards in place" for a "three- or
four-year period of time."
"Obviously," he added, "I wish we
had been more aggressive" and taken corrective action "a year earlier."
In private banking, wealthy and
powerful customers receive special
discretion and care. Private banks
within banks manage more than $15
trillion in assets, the committee staff
found. Citibank Private Bank has
40,000 customers, with 350 of them
officials or their families.
Levin said that what disturbed
him was a "rogues' gallery" of
Citibank Private Bank clients. He
said they included Raúl Salinas de
Gortari, a brother of the former
president of Mexico who is in prison
for masterminding a murder; Asif
Ali Zardari, husband of a former
prime minister of Pakistan who is in
jail for corruption; President Omar
Bongo of Gabon, subject of a French
corruption inquiry; the sons of a
former military leader of Nigeria,
Gen. Sani Abacha, one of whom has
been charged with murder; Jaime
Lusinchi, a former president of Venezuela, and two daughters of former
President Suharto of Indonesia.
The Salinas case, in which Citibank moved $80 million to $100 million around through secret accounts,
is what galvanized much of the initial
interest in Citibank Private Bank.
The hearing included the first public
testimony by Amy Elliott, the vice
president who handled the account.
She acknowledged failing to complete a business profile of Salinas, as bank policy required, until
after his arrest in 1995. The senators
asked about talks that she and other
executives had the day after the arrest. In those conversations she
spoke about having to talk to "God,"
but she told the senators that she was
not referring to a specific person.