Citigroup reports $400-mn fraud at Mexico subsidiary
01 March 2014
Citigroup Inc said yesterday that it had discovered at least $400 million in fraudulent loans in its Mexico subsidiary and said the crime might have involved employees.
The bank wrote down bogus loans to a company whose assets had now been seized by Mexican law enforcement officials.
The lender's 2013 profit was down by $235 million to $13.67 billion following the write-down. Terming the incident a 'despicable crime'' Citigroup chief executive officer Michael Corbat said the bank believed it was an isolated episode, Reuters reported.
The bad loans had been extended to Mexican oil services company Oceanografia, a contractor for Mexican state-owned oil company.
Citigroup's Mexican unit, Banco Nacional de Mexico, known as Banamex, had made the loans using expected payments from Pemex as collateral.
According to a note by Corbat to employees, in recent weeks, Banamex learned that Oceanografia appeared to have falsified invoices to Pemex that were collateral for loans.
The lender wrote down about $400 million of loans backed by the bogus invoices.
On 11 February, Pemex suspended Oceanografia from getting any government contracts for 21 months and 12 days, a serious blow for a company that received about 97 per cent of its revenue from the Mexican oil company.
According to public records, Oceanografia was awarded almost $3 billion through over 100 contracts with Pemex between 2003 and last year.
In the memo to employees, Corbat said it was not clear how many people were involved in the activity, which centred on the oil services company.
The New York Times cited people briefed on the matter as saying that at least one Banamex employee was suspected of enabling the fraud. According to the company, it was working with investigators in Mexico to ''initiate criminal actions'' that might yield ''just penalties on the responsible parties'' and could allow the bank to recover damages.
The Mexican government seized control of Oceanografía's assets last morning, a move that the attorney general, Jesús Murillo Karam, said at news conference in Mexico City was meant ''to preserve jobs'' and ''the company's documents.''
Meanwhile, questions are being raised as to why Citigroup was doing business with Oceanografía in the first place.
The company had been known to Mexican investors as politically connected but financially shaky.
It is a supplier marine engineering services and derives nearly all of its business from Pemex, Mexico's government-owned oil monopoly.
The US ratings firm Fitch had issued a warning about Oceanografía's high leverage and poor cash flow generation in 2009.