Citibank Admits Lapses in Oversight Helped Foreigners Launder Millions

WASHINGTON —  Citibank, confronted by a stinging new Senate investigation of money laundering, on Tuesday acknowledged lapses in oversight of its “private banking” operations during the 1990s--operations that helped foreign leaders and their relatives move millions of dollars overseas in questionable transactions.

A report by the Senate permanent investigations subcommittee charged that the foreigners, with Citibank’s help, used deliberately opaque networks of shell corporations, offshore trusts and other instruments to shield their identities as they secretly transferred money out of their own countries.

Among the most glaring incidents cited by the subcommittee were those involving the brother of former Mexican President Carlos Salinas de Gortari; the president of Gabon, an oil-producing nation in west Africa; the sons of a former Nigerian military strongman; and the husband of a former prime minister of Pakistan.

The schemes, according to the report written by the subcommittee’s Democratic staff, may have hindered efforts by banking regulators and law enforcement agents to investigate the legality of the financial dealings.

“Like all similar institutions, we have had problems and made mistakes,” John S. Reed, chairman and co-chief executive of Citigroup Inc., said in written testimony. Citigroup is the parent of Citibank.

While the subcommittee took pains to note that Citibank is not alone in its vulnerability to money laundering, the investigation and Tuesday’s testimony gave a remarkable dressing-down to one of the world’s most sophisticated financial institutions.

Citibank has not been charged with criminal wrongdoing in any of the cases.

Reed asserted that the bank has taken vigorous steps in recent years to shield itself from the abuses of would-be money launderers.

“Of course, the changes did not occur overnight,” Reed conceded, “and in retrospect one could take issue with whether they happened fast enough. . . . Change takes time.”

When pressed by Sens. Susan Collins (R-Maine) and Carl Levin (D-Mich.) to explain what went wrong, Reed replied: “We’re a human organization. We clearly have a number of instances where we have failed to follow policies.”

The inquiry and the hearing also offered a rare glimpse inside the world of private banking, in which banks cater to super-rich customers who seek to move their money around the globe with minimal hassle and maximum confidentiality.

Private banking has grown in recent years as U.S. banks have sought to expand their share of an exclusive and highly lucrative market and as the ranks of super-rich clients have multiplied.

Banking industry leaders maintain that private banking is a legitimate activity--a point not disputed by the subcommittee.

But Levin, reviewing several cases in which private bankers have come under fire for their dealings with foreigners accused of corruption, said: “America cannot have it both ways. We can’t condemn corruption abroad, be it officials taking bribes or looting their treasuries, and then tolerate American banks making profits off that corruption.”

The cases reviewed by the congressional investigation, each involving Citibank, included:

* Tens of millions of dollars transferred by Raul Salinas de Gortari out of Mexico and into overseas accounts in 1993 and 1994 during the presidency of his brother, Carlos Salinas de Gortari. Raul Salinas is now imprisoned in Mexico on a murder conviction and has been the subject of corruption and drug-trafficking probes in Mexico and Switzerland.

* More than $40 million moved through accounts controlled by Asif Ali Zardari, husband of Benazir Bhutto, former prime minister of Pakistan. A Pakistani court has convicted Zardari of taking $9 million in kickbacks and a Swiss court indicted him for money laundering.

* More than $130 million moved through accounts controlled by El Hadj Omar Bongo, president of Gabon since 1967. A French criminal investigation is examining allegations of illegal payments by an oil company to Bongo.

* More than $110 million moved through accounts connected to Mohammed, Ibrahim and Abba Abacha, sons of the late Gen. Sani Abacha, former military leader of Nigeria. At Nigeria’s request, a Swiss court has frozen Abacha-connected accounts and begun a money-laundering probe.

In the Abacha case, Alain Ober, a Citibank executive with private banking duties for African clients, admitted he was unaware for three years that he was dealing with sons of the notoriously ruthless Nigerian military leader. Ober told investigators that his clients used another last name--”Sani,” not “Abacha”--and that he took them to be ordinary businessmen. “I was embarrassed. I was appalled,” Ober testified, describing his reaction upon discovering their true identities.

Much of the hearing focused on the Salinas case. Amy Elliott, another Citibank private banking executive, testified that she waived certain standard background-checking procedures when she took Raul Salinas on as a client in 1992--confident that he was an upstanding businessman and member of a respected Mexican family.

Elliott, according to her testimony and the report, went to great lengths to help Salinas and his wife move tens of millions of dollars out of Mexico during 1993 and 1994.

But when Raul Salinas was arrested in 1995 on a murder charge and Citibank officials were scrambling to learn more about their client, they discovered that the bank had almost no information in its own records on Salinas’ business background or the source of his wealth.