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Citigroup under investigation for fraud, possible FCPA violations in Mexico unit

The Securities and Exchange Commission is reportedly investigating Citigroup for accounting fraud and possible violation of the Foreign Corrupt Practices Act following the bank’s disclosure of fraudulent loans in its Mexican unit.

In a press release Friday, Citigroup said it had discovered bad loans of about $400 million in Banamex, its Mexican subsidiary, forcing the bank to restate its 2013 earnings.

Citigroup said it would be adjusting downward its fourth quarter and full year 2013 financial results because of the fraud.

Banamex made a short-term loan of $585 million to a Mexican oil-services firm called Oceanografia.

Oceanografia is a key contractor for state-owned oil company Pemex.

Last month, Pemex suspended Oceanografia from all new contracts pending an investigation into billing irregularities.

Citigroup said it began looking at its exposure to Oceanografia after the suspension. The bank determined that a large portion of the invoices it made loans against were falsified to represent that Pemex had approved them, Citigroup said.

Citibank said Oceanografia allegedly submitted nearly $400 million of fraudulent invoices for short-term credit which were processed by a bank employee.

The New York-based bank said a review of loans to Oceanofrafia showed that the company had actually posted only $185 million in collateral and not the $585 million the bank had relied on.

Mexico’s attorney general said Friday the government had seized Oceanografia’s assets to protect creditors.

Reuters reported Sunday that the SEC’s investigation is in its early stages and its unknown whether the agency will refer the matter to the U.S. Department of Justice.

The U.S. Federal Bureau of Investigations said it was monitoring the situation for possible criminal activity.

Citgroup’s CEO Michael Corbat promised to take action against any employees who engaged in criminal activity or provided lax oversight.

“I can assure you there will be accountability for those who perpetrated this despicable crime and any employees who enabled it,” Corbat said in a memo to employees, as reported Friday by the New York Times’ Dealbook.

Oceanografia is known as a politically connected but financially shaky company. The U.S. ratings firm Fitch warned about Oceanografia’s high leverage, poor cash flow and over-dependence on Pemex in 2009, Dealbook said.


Julie DiMauro is the executive editor of FCPA Blog and can be reached here.

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