RBI fines Citibank Rs25 lakh over Gurgaon fraud

The Reserve Bank of India on Monday imposed a penalty of Rs25 lakh on Citibank for violating anti-money laundering and know-your-customer (KYC) rules, which it said led to the Rs400-crore fraud at its Gurgaon branch.

"The failure to follow KYC / AML guidelines while opening accounts led to the perpetration of a fraud at its Gurgaon branch," the RBI said in a statement.

In December 2010, a Citibank relationship manager, Shivraj Puri, was charged with luring 40 high net worth individuals and corporate entities to invest in a bogus scheme, promising ultra-high returns. He then diverted the funds to play on the stock market. (See: Citibank scam accused Shiv Raj Puri destroyed evidence: Police).

Puri not only duped a string of wealthy individuals, but also the Munjals-controlled Hero group to invest close to Rs200 crore in the sham investment scheme.

A case was filed in Gurgaon and the police had arrested Puri and Sanjay Gupta, the chief financial officer of Hero Corporate Services. Currently, the case is under investigation (See: Ponzi at Citi: Hero bigwig joins Puri behind bars).

Pending recovery of the siphoned-off funds, Citi has compensated investors who had lost out by subscribing to the scheme. At the same time, RBI kicked off its own investigations to look into the adequacy of Citi's systems to prevent a fraud.