A Securities and Exchange Commission investigator testified yesterday that between 1973 and 1980 Citibank "engaged in thousands" of transactions to evade foreign bank regulations and to move profits from high-tax countries to low-tax ones.

Thomson von Stein, one of the leaders of a three-and-a-half year investigation of Citibank's foreign exchange transactions, said Citibank maintained "two sets of books," one it showed to regulators and another that it maintained for internal management.

The SEC investigation into Citibank was triggered in 1978 when a young officer in the Paris branch, fired after he carried his story to the bank's board of directors, went to the SEC. He said European branches of New York's largest bank regularly phonied foreign exchange trades to show a profit in the bank's Nassau branch -- where taxes are low -- and a loss in Europe where taxes were high.

Although Citibank eventually paid back-taxes and penalties to three European countries, both the SEC and the Comptroller of the Currency -- which regulates national banks -- declined to take any action against Citibank after lengthy investigations. Citibank has admitted that bank officials made some questionable transactions, but said they were neither widespread nor representative of company policy.

Von Stein and David Doherty, the associate director of the SEC's enforcement bureau, testfified before the House Energy and Commerce Committee's subcommitee on oversight and investigations. Both von Stein and Doherty had recommended that the SEC cite the bank's parent company, Citicorp, for failure to properly disclose to investors its foreign exchange activities. But three top SEC staffers urged the commission to take no action and last December, the commission voted 3 to 1 to close the case.

Subcommittee Chairman John D. Dingell (D-Mich.) said he opened an investigation into the SEC's decision because it signifies a new direction by the agency.

"In rejecting a recommendation to bring an enforcement action against Citicorp, the commission overturned long-established precedents and introduced new criteria for disclosure," Dingell said.

Von Stein, in his testimony, said Citibank practices were widespread, done with the knowledge of top management and were broader than the foreign exchange allegations levelled by the fired officer, David Edwards. Von Stein said about one-third of the foreign exchange profits in Citibank branches in Switzerland, West Germany and Italy came from concealed trades that were made to look as if they occurred in Nassua rather than Europe.

Von Stein said that if a branch received a short-term deposit that required the bank to put aside a large portion as a non-earning reserve, it would transfer the deposit to the Nassau branch, which would then re-deposit the funds as a four-year deposit in the European branch.

He also said that foreign exchange traders who were limited by laws as to how much of a particular currency they could hold, concealed the size of their holding by counting transactions as if they were held by the Nassau branch.

The board of directors of Citicorp, in a study released last month, confirmed that it had engaged in 26 foreign exchange transactions that were wrong and that the company had paid back taxes to Switzerland, France and West Germany.

Doherty, who recommended that the SEC take action against Citicorp, said he felt the bank's deceptive practices were "unsafe" because they could alienate the countries in which Citibank operated, thereby harming investors in the nation's biggest bank.