The Securities and Exchange Commission rejected a recommendation by its enforcement staff to pursue sanctions against Citicorp, the world's largest foreign exchange dealer, for moving money from foreign currency transactions between countries to lower the taxes it paid, an SEC source confirmed yesterday.

The decision was reported yesterday by The New York Times in a story quoting extensively from SEC memos. According to the Times, the enforcement staff found that Citicorp shifted at least $46 million in profits from currency transactions from branches in European countries, where taxes are high, to branches in the Bahamas, where the income would be taxed at a lower rate. The scheme, which operated from 1973 to 1980, was directed by top management of the nation's second-largest banking company.

The House telecommunications, consumer protection and finance subcommittee headed by Rep. Timothy Wirth (D-Colo.) yesterday informally asked the SEC for all staff memos related to the decision on Citicorp and a transcript of the SEC meeting where the decision was made. The oversight and investigations subcommittee of the House Energy and Commerce Committee was also considering taking a closer look at the decision.

One rationale given for the decision was an assertion by two other SEC divisions that it would be improper to hold bank officials accountable for disclosure violations "based on unadjudicated illegal or improper conduct by a company's officers and directors unless there were affirmative representations as to management's honesty and integrity" in other company disclosures.

That assertion was rejected by some SEC staffers.

Former SEC enforcement chief Stanley Sporkin, who said he had not seen the memos in question and did not know if information had been taken out of context, said, "I would hope that nobody is espousing the position that unless there is a positive statement of being honest, there is no obligation to continue to be honest."

A Citicorp spokesman said yesterday that the SEC informed the firm that the commission terminated the case on the recommendation of its senior staff. The three-year-old investigation of the bank's currency transactions began after a dismissed Citibank employe charged in 1978 that the bank was evading European taxes and violating foreign exchange laws.

The employe, David Edwards, was fired after what he described as repeated attempts to bring his charges to the attention of top management. He filed a suit against Citibank for wrongful discharge but it was dismissed. Edwards is now in the oil and gas business in Wichita Falls, Tex.

In 1978 Edwards said that Citibank and other major U.S. banks helped drive down the value of the dollar in international money markets to increase their profits. Edwards also outlined transactions that he said were designed to evade taxes, such as the sale of dollars from the Paris to Nassau branches of the bank, where profits on such transactions would not be taxed.

A Citicorp spokesman said yesterday that "Citicorp has maintained--and, we believe, proven--that its foreign exchange trading practices and procedures were basically proper." The bank spokesman added that "because this is one of the most complex areas of international finance and tax law, nearly four years ago we ordered changes in procedures wherever we felt there was any room for misunderstanding or dispute."

After allegations were made about the bank's transactions, "We reallocated profits among several country operations where earlier allocations had been questioned or might be open to question," the spokesman said.

"We paid a fine in one country in settlement of disputed allocations there." The country appeared to be either Switzerland or France.

The spokesman also said that the bank had explained its actions "to all of the many authorities involved in the U.S. and abroad." The banking firm's transactions were the subject of several foreign investigations and were reviewed for the bank itself by the law firm of Shearman & Sterling. That study found "no pattern of violation of foreign exchange regulation" but it cautioned that some transactions might be viewed as violations by local officials.

The comptroller of the currency conducted a parallel investigation to the SEC's several years ago. In December 1980, John Heimann, who was then head of the agency, wrote to Citibank, saying that the Shearman & Sterling report "generally appears to be a fair and accurate presentation of the circumstances concerning European branch foreign exchange activity."

The apparent leak of SEC documents upset SEC officials. "It would appear that documents were made available illegally, and I find that an unsavory practice," said Commissioner John Evans. Like other commissioners who could be reached, he had no comment on the SEC decision itself.