Japan Orders Citibank to Close its Private Banking Operations

In finance, violating regulations and breaking the law is often settled with a quiet consent decree and a fine, without an admission of wrongdoing. The result is a business culture that has no respect for the law. Japan appears to have captured the attention of the banking world though with its punishment of wrongdoing at Citibank’s private banking operations in the land of the rising sun. It’s the equivalent of a corporate death sentence; Citibank has been told to get out of private banking at four Japanese branches.

Japan’s Financial Services Agency, more or less its SEC, said, "In a management environment in which profits are given undue importance by the bank's headquarters, a law-evading sales system that disregards the laws and regulations of Japan was constructed." Among the sins was brokering deals like art sales without disclosing the risks to the wealthy individuals engaged in them. And in the every polite tone of the Japanese, the bank also engaged in deals that "could be suspected of being associated with money laundering.” Questions were answered in ways that "differed from the truth.”

The bank made the usual moves, it fired six people and reprimanded eight others. That wasn’t enough for the FSA. The four branches engaged in private banking will lose their licenses September 30 of next year. The delay will allow deals to unwind, and customers time to make alternative arrangements for their wealth.

The penalty is a shot across the bows by the FSA, which has been throwing its weight around lately. Cantor Fitzgerald, UBS and Deutsche Bank have received their share of extra scrutiny. Meanwhile, Citibank is already smarting from a European bond deal that appears to have been less than kosher.

Citibank does have a code of conduct, that reminds employees, “a fiduciary has a legal duty to act in the best interests of its clients—putting its clients’ interests ahead of its own interests, or the interests of its affiliates or employees.” And “The Citigroup Global Anti-Money Laundering Policy requires that Citigroup businesses develop and implement effective anti-money laundering programs to comply with applicable law and to protect Citigroup from being used for money laundering.” And finally, “Making false statements to or otherwise misleading internal or external auditors, Citigroup counsel, Citigroup representatives or regulators is grounds for immediate termination of employment or other relationship with Citigroup and may also be a criminal act that can result in severe penalties.”

But it isn’t enough to write these things. There must be action as well. And if a company can’t make that happen, the Japanese solution will ensure that the unethical/criminal behavior ends.


© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.


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