Daily Management Review

Citigroup Levied $15 Million Penalty for Violating U.S. Compliance Regulations


Citigroup Levied $15 Million Penalty for Violating U.S. Compliance Regulations
A unit of Citigroup Inc will have to cough up a whopping $15 million in order to settle a slew of civil charges that were placed against the bank alleging that the bank failed to enforce policies that were designed to prevent and detect insider trading, according to US regulatory sources.

This is the second time in a week that that Citigroup has been pulled up by the Securities and Exchange Commission and has had to pay up for violating norms.

The group had been ordered to pay up another $180 million by two of its units to settle charges against it for defrauding hedge fund investors during the financial crisis earlier this week.

A Citigroup spokeswoman said the company is "pleased to have the matter resolved."

A unit of the group, BNY Mellon, allegedly breached the Foreign Corrupt Practices Act in 2010 and 2011 according to the Securities and Exchange Commission.

“The bank employees  alleged that BNY Mellon when bank employees "sought to corruptly influence foreign officials in order to retain and win business managing and servicing the assets of a Middle Eastern sovereign wealth fund," SEC said in a statement.

According to the SEC the foreign officials demanded valuable internships for their family members and the bank obliged.

“BNY Mellon provided the internships without following its standard hiring procedures for interns, and the interns were not qualified for BNY Mellon's existing internship programs," SEC said.
The settlement is one of the first SEC actions under the FCPA, which includes anti-bribery provisions -- giving anything of value to a foreign official in exchange for business deals is prohibited. It also sets a precedent that even the hiring of interns could be scrutinized under the law.
The Citigroup failed to review thousands of trades executed by its trading desks during a 10-year period, said a SEC while referring to the latest enforcement case.

It is a regulatory norm of the Federal securities that the brokers need to ensure and take reasonable steps to make sure that the traders were not misusing material and non-public information while executing transactions for business and investments. Citibank was found to have violated this norm over a protracted period.

Nearly 467,000 transactions were routed by the Citigroup in an improper manner on behalf of certain advisory clients to an affiliated market-making firm for execution, the SEC said while delivering the judgement.

The SEC added that the Citigroup, under the settlement clauses, volunteered to pay the $2.5 million in its profits from these principal trades back to the affected clients. The SEC mandated that the bank group also would have to hire a consultant to review its trade surveillance system.

The case was settled by the Citigroup without admitting or denying the charges.

If reports are to be believed, the SEC is also conducting investigations a number of  Wall Street's biggest banks including JP Morgan,  Citigroup and Goldman Sachs about similar allegations, especially the hiring of the family members of Chinese officials in order to secure deals.
(Sources: http://money.cnn.com & www.reuters.com)