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Citigroup’s Mexico Unit Faces Widening U.S. Money-Laundering Probe
by Alan KatzDakin Campbell
July 24, 2015 — 9:08 AM CDT
Updated on July 24, 2015 — 11:30 AM CDT



A Banking and Industrial police stands outside guarding one of the Banamex Bank branches at the Avenue Reforma in Mexico City, Mexico, on Nov. 13, 2014.
Photographer: Susana Gonzalez/Bloomberg

The U.S. Justice Department is investigating whether Citigroup Inc. let customers move illicit cash through its Mexico unit, setting the bank’s biggest international operation in the path of an expanding money-laundering probe.

The Justice Department subpoenaed Banco Nacional de Mexico, known as Banamex, demanding information about its anti-money-laundering controls and seeking documents about its due diligence on operations involving hundreds of clients, according to documents reviewed by Bloomberg.

The subpoena, which was sent in January but hasn’t been reported or disclosed by the bank, expands a Justice Department investigation previously known to focus only on a small U.S. unit. It shows investigators are looking into a Mexico operation that accounts for about 10 percent of the New York-based company’s core revenue, and has about 1,500 branches -- almost twice as many as Citigroup has in the U.S.

Banamex, which is wholly owned by Citigroup, is already under U.S. investigation over alleged loan fraud against the bank. Citigroup separately said it shut down a unit of Banamex security guards last year after uncovering fraud there.

The investigation further threatens the legacy of Manuel Medina-Mora, who has been a face of Banamex for nearly two decades. He led Banamex when Citigroup acquired it in 2001, later advancing to run Citigroup’s Latin American consumer operations and ultimately its global consumer bank. Medina-Mora, who stepped down as Citigroup’s co-president last month, retains the title of non-executive chairman of Banamex.
California Probe

Neither Citigroup nor Medina-Mora have been accused of wrongdoing. Molly Millerwise Meiners, a Citigroup spokeswoman, declined to make Medina-Mora available for comment. Peter Carr, a Justice Department spokesman, declined to comment.

Citigroup disclosed last year that the U.S. Attorney’s Office in Boston was looking into money-laundering controls at Citigroup and related parties. Meiners declined to comment on any probe, referring to Citigroup’s most recent disclosure of the investigation, in March, which said the bank is cooperating. The disclosures named a California unit, Banamex USA, but not the Mexico unit.

Citigroup shares fell 1.4 percent to $59.03 at 11:53 a.m. in New York, the third-worst performance in the 24-company KBW Bank Index. The stock rose 11 percent this year through Thursday.
Special Delivery

The Justice Department’s foray into Mexico comes after multiple U.S. regulators have poked at similar issues in the U.S. Banamex USA, a collection of U.S. branches that Citigroup acquired when it bought the Mexican banking giant, now consists of three branches in California and Texas. On Wednesday, Citigroup said it would close those branches after it agreed to a $140 million settlement with the Federal Deposit Insurance Corp. and California regulators over deficiencies in Banamex USA’s anti-money laundering program.

The U.S. subpoena was delivered to Banamex, on the Justice Department’s behalf, by Mexico’s banking commission, according to the documents reviewed by Bloomberg News.

Such involvement by a Mexican agency would be significant, said James Gurule, a former federal prosecutor and undersecretary of enforcement for the U.S. Treasury Department. It likely would have required considerable negotiating efforts between governments, said Gurule, now a law professor at the University of Notre Dame.
Money Transfers

U.S. prosecutors are demanding records about the relationship between the California and Mexico units, according to the documents reviewed by Bloomberg News. Some of Banamex USA’s business lines, such as operations and finance, reported to Banamex employees in Mexico while compliance and legal reported to Citigroup personnel in New York, according to the documents.

Prosecutors are seeking records of due diligence performed on money transfers between the U.S. and Mexico that the California and Mexico units handled on behalf of other companies, including money-wiring businesses. They also asked for the full banking records of five clients.

Citigroup in January said the Mexico unit wasn’t for sale, following reports that the bank was seeking a buyer.

It wouldn’t be the first time U.S. authorities expanded such a probe beyond national borders. Prosecutors pursuing suspicions of lax controls of sanctions and money-laundering rules at HSBC Holdings Plc investigated lapses in the U.S. before peering into activities in the London-based bank’s Mexico unit. As part of its $1.9 billion settlement in 2012, HSBC admitted to failing to maintain effective anti money-laundering programs in both the U.S. and Mexico.