Citibank Called Lax on Salinas Money Trail
By Kathleen Day
Citibank, the nation's second-largest bank, failed to follow its own procedures against money laundering and "facilitated a money-managing system that disguised the origin, destination and beneficial owner of the funds," says the report by the General Accounting Office, the investigative arm of Congress.
Congressional officials said the report, titled "Raul Salinas, Citibank and Alleged Money Laundering," is likely to lead to congressional hearings on Citibank next year and could prod the Justice Department, which for three years has been investigating Citibank's handling of Raul Salinas's money, to speed up its probe into whether the bank broke any criminal laws. Citibank is now part of the banking and insurance giant Citigroup Inc.
Raul Salinas is the eldest brother of Carlos Salinas de Gortari, the Harvard-trained economist who was the darling of U.S. business and political leaders when he held the Mexican presidency from 1988 to 1994. But there were repeated rumors that Raul Salinas, known for living lavishly on a $190,000 civil service salary, had dubious sources of income and was linked to drug lords.
Yet when he came to Citibank's private banking unit in 1992, few questions were asked, the report said. Many large banks have established these units, which cater to the very wealthy and specialize in making the kind of complicated financial transactions that Citibank performed for Salinas to hide the source and destination of funds. Often the transactions are performed for legitimate purposes.
According to a Citibank representative, "Citibank New York's Mexican Division believed that all of Mr. Salinas's funds had been obtained legally, with a large portion resulting from the sale of a construction company that he owned," the report said. "However, Citibank reportedly knew no details about the construction company, including its name, who had purchased it, or the amount of money generated by the sale."
From 1992 to 1994, Raul Salinas's wife, Paulina, hand-carried checks to Citibank Mexico, allowing Citibank to funnel millions of dollars from Mexico to Switzerland through a complex series of transactions through New York, the Cayman Islands and London that hid the paper trail of the funds.
But with the collapse of the Mexican economy in late 1994, just after Carlos Salinas left office, the brothers' world came crashing down. The peso crisis destroyed Carlos Salinas's economic reputation -- and he now lives in Ireland, which has no extradition treaty with Mexico.
In early 1995, Raul Salinas was arrested in Mexico on charges of masterminding the killing of a top ruling-party official. He is still in prison, and his nearly two-year-long trial is expected to conclude in the next two weeks. A judge earlier this year dismissed Mexican money-laundering charges, citing lack of evidence.
In October, Swiss officials said they have amassed enough evidence after a three-year investigation to prove that Raul Salinas's money came from Mexican and Colombian drug lords, who the Swiss say paid Salinas in exchange for government protection as they shipped drugs through Mexico into the United States.
Raul Salinas has denied that his fortune was illegitimate, saying he had received the money from rich Mexicans for the establishment of an overseas investment fund.
Investigators have not accused Carlos Salinas of wrongdoing.
Only after Raul Salinas was arrested in 1995 did Citibank officials investigate his background and attempt to put together a financial background check detailing the source of his funds, including references from other banks. A Citibank official told the GAO that the failure to conduct the background check violated Citibank internal's "know your customer" policy.
The Justice Department is investigating the Salinas-Citibank relationship for possible civil and criminal violations by the bank. Federal banking regulators also have investigated it and, depending on the outcome of the Justice probe, will have to decide whether to take any enforcement or regulatory actions against the bank.
"We have looked into the matter ourselves and have found that neither the company nor any employee has violated the law," Citibank spokesman Dick Howe said yesterday. "We're cooperating fully with law enforcement authorities."
Howe said the GAO report "contains errors of fact and interpretation" but "because of our policy of cooperating fully with investigations by law enforcement agencies, we will continue to refrain from discussing specifics of the Salinas matter." He said Citibank has strengthened its internal procedures since 1994.
Money laundering is concealing the source of funds obtained from an illegal activity, such as drug sales or bribery, government and banking industry lawyers said.
To prove criminal wrongdoing, prosecutors would have to show that an institution was "willfully blind" to the fact that funds come from an illegal source, lawyers said. Being "willfully blind" is "the conscious avoidance of knowledge of facts," the GAO report said. If a bank willfully ignores its own policy, it makes "willful blindness" easier for a prosecutor to prove, lawyers said.
No law specifically requires banks to know their customers, lawyers said, but money laundering is a crime. It is accepted practice now -- and was during the 1992-to-1994 period -- that an important way of guarding against money laundering is to know your customer. That is why Citibank had the know-your-customer policy in the first place, lawyers said.
Spokesmen for the Office of the Comptroller of the Currency and the Federal Reserve Board, the nation's top bank regulators, would not comment. But the regulators are expected to unveil a proposal Monday to toughen know-your-customer standards.
A Justice Department spokesman also declined to comment.
"If everything Citibank did was legal, then what are bank regulators doing to make sure this kind of thing doesn't happen again?" asked David McKean, minority staff director of the Senate Permanent Subcommittee on Investigations, which requested the GAO report. "And the flip side of that is if what Citibank did was illegal, then what has the Justice Department been doing for the last three years?"
Sen. Carl M. Levin of Michigan, who will be the subcommittee's ranking Democrat, has called for hearings next year.
GAO investigators also noted that trial testimony by a Citibank official in 1994 about procedures to prevent money laundering in the bank was "inconsistent" with the procedures Citibank followed in handling Salinas's money.
Amy C. Elliott, head of the part of Citibank's Mexican Division in New York that handled the Salinas account, testified as a government witness in a 1994 money-laundering case in which an American Express Co. banking official was convicted, in part because he "had not followed prescribed" know-your-customer procedures, according to the GAO report and sources familiar with the case.
In sworn testimony, Elliott said that at Citibank officials "were to make an extensive effort to know their potential customers, as a way of protecting the bank, before accepting them," the GAO report said.
She also said the know-your-customer policy was "ongoing" at Citibank, which meant that officials "visited customers' homes and businesses frequently -- 10 to 12 times a year in their country -- to know what's going on," the report said.
By contrast, a Citibank official told GAO investigators that Citibank officials handling the Salinas account "never visited Mr. Salinas's place of business" and "knew no specifics" about the construction company that the bank says it believed was the source of Salinas's money, the report said.
Following the Money
How between $90 million and $100 million in alleged drug money flowed from Raul Salinas de Gortari through Citibank institutions.
1. Withdrawals made from Salinas's funds in Mexican banks (Bancomer, Somex, Banca Cremi, Banorte and Banco Mexicano) are hand-carried in check form by Salinas's wife, Paulina, to Citibank Mexico.
2. Citibank Mexico wires the money, in U.S. dollars, to a Citibank fund in New York that mingles it with money from many accounts.
3. Citibank New York's Mexican Division retrieves the funds and wires them to Citibank London and then Citibank Switzerland in an account for a Cayman Islands company called Trocca, which Citibank has set up for Salinas.
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