High officials at Citibank, one of the world's largest, most powerful financial institutions, have been accused of engaging in an international effort to squelch charges of illegal activities in the bank's overseas operations. The charges, made by a former officer of the bank, have already triggered a $14 million civil suit by the Justice Department and the Securities and Exchange Commission.
New information obtained by The Washington Post from sources within the bank outlines an extensive effort on the part of Citibank officials to contain the employe's allegations of illegal activities within the bank's European operations.
The alleged coverup began in September 1975 when David Edwards first told Citibank officials he had reason to believe that the treasurer of the bank's Paris branch, where Edwards was employed, was taking kickbacks in connection with the bank's Eurocurrency business.
At the time, associates in the bank thought Edwards just was alleging misconduct by one employe. But the controversy has become much bigger now. Sources inside the bank say that high bank officials continually thwarted Edwards' efforts to detail his allegations, repeatedly tried to get him to drop them and eventually fired him when he refused to accept a transfer to a non-sensitive division in New York. Edwards has since said in court documents that he believes the bank wanted to prevent him from ever knowing what became of his charges.
According to a suit he has filed in a New York court against the bank, Edwards now believes that some Citibank officials wanted to keep his charges contained because they had been aware of them all along, and had tolerated the alleged activities because they resulted in more bank business and higher profits for the overseas branches.
Other sources in the bank have now confirmed that there was an attempt to keep Edwards quiet while he was still an employe.
To further complicate matters, however, Edwards has charged in magazine articles written before his dismissal earlier this year that European money traders for many banks deliberately are causing fluctuations in the price of the dollar for their own profit. Because international money trading is virtually unregulated, Edwards' charges have raised nervous eyebrows in the banking industry, and have led to Justice Department and Securities and Exchange Commission investigations of possible price fixing and manipulation of the dollar by U.S. banks.
Banking industry sources now point to what they claim to be the extraordinary lengths to which several Citibank officials went to keep Edwards' charges from surfacing in public.
The Washington Post has been able to confirm independently many of Edwards' allegations.
Other Citibank sources confirmed that only hours after Edwards made his accusations to internal bank investigators - supposedly in the strictest of confidence - they passed the accusations to those whom Edwards had accused.
In at least one case, an accused banker contacted one of the people Edwards had said would corroborate his accusations 36 hours after Edwards made his supposedly secret statements.
The accused banker offered to place some dollar business with Edwards' potential corroborator, who was a money trader for another financial institution in Europe, that would result in a commission to the trader of about $2,000, while at the same time trying to convince him that he, the Citibank official at the center of Edwards' charges, was innocent of any wrongdoing.
Citibank sources have confirmed to The Washington Post that bank officials were aware of some of Edwards' charges but were unwilling to act upon them. One bank source said many of the allegedly illegal activities attributed to Citibank officers in Europe by Edwards were in fact true but that the officials in question "were acting under orders of the bank."
For nearly two years, Edwards attempted to bring his initial allegations to the bank's attention and, after at least one bank official told him he would "be better off professionally to leave Citibank," Edwards began to believe there was a larger coverup. He became aware, for example, of complex transactions that he claims the bank was using to avoid payment of European taxes.
Meanwhile, Edwards was being stalled on his first allegations about certain Paris officials involved in kickbacks. Told he was not a "team player," Edwards nevertheless continued to complain that his charges were not being checked out. Still, he did not raise his charges outside the bank.
So in the summer of 1976, armed with new evidence of allegedly larger-scale illegal operations, Edwards again went back to Citibank higher-ups to outline the schemes. This time, he said the bank was illegally "parking" currency transactions on off-shore tax-haven islands in an attempt to avoid taxes on profits realized in those transactions.
"I had become aware that (the Paris official he had accused) upon (another bank official's) instructions had been deliberately losing money to our Nassau branch through foreign exchange transactions even though no one in the Nassau branch dealt in foreign exchange," Edwards wrote in a memorandum to Citibank officials. "Apparently this was purposely done to evade the payment of French taxes."
Edwards claims that now-deceased Citibank Senior Vice President Freeman Huntington once admitted the parking activity to him, and said he (Huntington) would try to stop the practice. Confident that something would be done, Edwards left the bank to take a brief leave of absence to come back to the United States for personal reasons.
But when he returned to Paris in early 1977, he said he was told privately by one of his superiors that he in effect had been blacklisted by the bank, and that none of his allegations had been acted upon. Edwards says he found, for example, that the parking of positions, was still going on, and was in fact resulting in continuing profit growth for Citibank's European operations.
At that point, Edwards threatened for the first time to go public with his charges unless the bank investigated them. Shortly thereafter, he was contacted in Amsterdam - where the bank had transferred him - by Erwin Pomeroy, vice president of the controllers division of the bank.After telling his story again, Edwards said Pomeroy told him to talk to Arnold Claman, another vice president of the controllers division.
The next night, Claman and Pomeroy both met with Edwards to hear his story. For the next three weeks, Edwards heard nothing. He then called Claman in New York to inquire as to the status of the investigation.
"His only response was to state that he was holding my personnel file in front of him at that moment and that he and Mr. Huntington would take care of me if I would forget the whole affair," Edwards said in his memo to another Citibank official.
(Both Pomeroy and Claman refused to comment about the Edwards case. Claman, an attorney, said "this is a matter of litigation . . . and that's the answer I think everyone at the bank will give you. I will not respond to any questions on the Edwards matter.")
About a month later, though, Citibank Comptroller Steven Eyre reportedly set up a meeting between Edwards and Eugene Sweeney, head European controller for the bank.
On May 13, 1977, Edwards met with Sweeney in Amsterdam and told his story still another time. Edwards contends that Sweeney promised to reopen the investigation, but cautioned Edwards to limit further discussions to the kickback charges, and to stay away from the allegedly illegal foreign exchange allegations.
(Both Eyre and Sweeney were out of the country, and could not be reached for comment.)
Exactly one month later, Edwards went to London to meet again with Sweeney and a resident inspector from Paris, Neville Armstrong, who had been chief of the bookkeeping section of Citibank's London money market for 10 years.
At that meeting, which lasted all day, Edwards went over the alleged kickback scheme in detail with the help of documents he had obtained along the way. Edwards also told the two men that there were at least two people who could corroborate his story. Edwards says the two investigators told him they would take note of the kickback charges but would not make written reference to the problem of parking transactions in tax havens, with Sweeney telling Edwards, "If you bring this matter up, it will not go in your favor."
(Armstrong was not at his Paris office, which said he could not be reached.)
Two days later, Edwards learned that the man he had accused of kickbacks in Paris, Jean Pierre Delaet, had contacted one of the two men Edwards said could corroborate his story, and informed him that he, Delaet, was fully briefed on Edwards' meeting in London. Delaet then reportedly asked Edwards' corroborator - to come to Paris and state that he did not know of any irregularities at that branch.
"During the same conversation, Delaet gave (the former employe) a 50-million-franc transaction with a promise of more business to come daily," Edwards says in his memo. Prior to that, Citibank Paris had virtually no business with that former employe. The transaction resulted in an estimated $2,000 commission for the former employe.
(Delaet, who apparently no longer works for Citibank, could not be reached.)
Meanwhile, internal bank documents obtained by The Washington Post show that during this same period in 1977, there was considerable concern over the foreign transaction parking arrangements, and growing sentiment within the bank that the profitable practices should be stopped. One vice president already had suggested in an earlier memo that, by continuing the practice, the bank would be "exposing ourselves to blackmail, for example by some unhappy staff member."
On June 23, 1977, Edwards said he got a phone call from Huntington, the senior vice president, telling him to come to New York. "I want to talk to you about two things," Edwards said Huntington told him. "They may or may not be related to each other. The first is, you have to shut up. You can't go on. You are not allowed to go back to London to talk to the controllers. The second, which may or may not be related is, what are you going to do for a job."
Edwards went to New York and had his meeting with Huntington who, Edwards said, repeated his message. For his part, Edwards went over his entire story and said he would stop raising his charges with the controllers if Huntington would set up a meeting between Edwards and anyone in executive management so Edwards finally could be sure that his charges were reaching the top levels of the bank.
A meeting was arranged on July 27 between Edwards and George Vojta, executive vice president of the bank. At that meeting, Vojta reportedly said that he would take a hard look at the allegations and end any illegal activity if it existed. He told Edwards to go to his parents' home in Texas while the matter was looked into.
(Vojta could not be reached for comment because he was out of this country.)
But on the same day of that meeting, July 27, 1977, Huntington and Robert Logan, senior vice president in charge of European operations, sent a memo to overseas treasurers and senior officers which said: "Effective immediately, no foreign exchange positions off local books may be booked at branches other than New York." That meant that the off-shore parking places such as Nassau that allegedly were used to avoid taxes no longer would be used.
And, The Washington Post has learned, on the day before the Vojta-Edwards meeting, Citibank commissioned the bank's accountants, Peat, Marwick, Mitchell & Co., to investigate the activities of the Paris branch. That investigation recommended several changes in overseas transactions, but did not address the Edwards allegations. There was one paragraph however, that said:
"We have not included the possibility that certain items would not be questioned because they are not apparent in the accounts, or because the Tax Inspector would prefer not to go into unusual problems."
A week after his meeting with Edwards, Vojta was transferred out of the International Banking Group into a planning position at the bank.
Several weeks after that, Edwards met with Vojta again, only to be told that Volja's investigation had revealed that there was nothing to the allegations of improprieties in Europe. Edwards was told to go back to Amsterdam to pack up and return to New York, pending a new assignment.
Edwards came home to be bounced around the home office for a few weeks when, he says, he learned that the overseas currency parking operation was continuing, but by different methods.
Then, on Nov. 14, 1977, Edwards wrote to Executive Vice President Thomas Theobald, who had replaced Vojta, again raising the charges and adding, "Was I wrong to do what I have done? I think not. Would the bank have been better served if I had participated by conspiracy of silence in the illegality? I think not. Would our bank have been better off if I had brought these problems to the attention of the appropriate public officials rather than my superiors at the bank? No."
Theobald later wrote Edwards on Dec. 14 to say that none of the allegations could be corroborated, adding that the bank had "concluded that your continued allegations were detrimental to the best interests of Citibank. Therefore we request your immediate resignation."
Some months later, Edwards filed suit in a New York State court asking for $14 million from Citibank for wrongfully dismissing him. Edwards contends that he was only following company policy by continually bringing any alleged illegal activity to the attention of the bank.
Theobald has denied during a long interview that there has been any illegal activity on the part of the bank.
Theobald maintains that many of the transactions Edwards claims were designed to evade taxes were in fact necessitated by local laws which force the bank to "park" holdings in certain currencies in offshore branches because the country would not allow a local trader to hold the position overnight.
Those local laws, Theobald says, do not recognize the reality of international money trading, which is a 24-hour-a-day operation, and frequently requires a trader to hold a position overnight.