Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering
(Statement/Record, 11/09/1999, GAO/T-OSI-00-3).
Pursuant to a congressional request, GAO discussed its 1998
investigation of alleged illegalities involving Raul Salinas de Gotari,
brother of the former President of Mexico, Carlos Salinas de Gotari, and
a U.S. bank, Citibank.
GAO noted that: (1) Mr. Salinas was able to transfer $90 million to $100
million between 1992 and 1994 by using a private banking relationship
formed by Citibank New York in 1992; (2) the funds were transferred
through Citibank Mexico and Citibank New York to private banking
investment accounts in Citibank London and Citibank Switzerland; (3)
beginning in mid-1992, Citibank actions assisted Mr. Salinas with these
transfers and effectively disguised the funds' source and destination,
thus breaking the funds' paper trail; (4) Citibank: (a) set up an
offshore private investment company named Trocca, to hold Mr. Salinas'
assets, through Cititrust (Cayman) and investment accounts in Citibank
London and Citibank Switzerland; (b) waived bank references for Mr.
Salinas and did not prepare a financial profile on him or request a
waiver for the profile, as required by then Citibank know your customer
policy; (c) facilitated Mrs. Patricia Paulina Salinas' use of another
name to initiate fund transfers in Mexico; and (d) had funds wired from
Citibank Mexico to a Citibank New York concentration account--a business
account that commingles funds from various sources--before forwarding
them to Trocca's offshore Citibank investment accounts; (5) no U.S.
documentation identified Mr. Salinas as Trocca's beneficial owner or
connected Mr. Salinas to the Trocca funds transferred through Citibank
Mexico and Citibank New York; (6) according to Citibank New York's Vice
President for Legal Affairs, Citibank's actions violated only one aspect
of the then Citibank know your customer policy; (7) Citibank should have
prepared a financial profile or waived the requirement before accepting
Mr. Salinas as a customer; (8) by investigating his financial
background, Citibank could have verified the source of Mr. Salinas'
wealth and transferred funds; (9) limited by the ongoing Department of
Justice investigation, GAO could not determine whether Citibank's
actions violated law or regulation; (10) the Federal Reserve also did
not comment on whether Citibank's actions were violations because
information available to it at the time GAO inquired was insufficient
for it to make a determination; (11) however, the Office of the
Comptroller of Currency stated that the actions did not violate civil
aspects of the Bank Secrecy Act; (12) private banking's know your
customer policies were then voluntary and not governed by law or
regulation; and (13) a comparison of Citibank actions and Citibank
testimony in the 1994 money laundering trial shows that the two were
inconsistent concerning due diligence and know your customer practices
in private banking.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-OSI-00-3
TITLE: Private Banking: Raul Salinas, Citibank, and Alleged Money
Laundering
DATE: 11/09/1999
SUBJECT: Fraud
Lending institutions
Bank deposits
Electronic funds transfer
Money laundering
Organized crime
Banking regulation
Internal controls
Law enforcement
Bank examination
IDENTIFIER: New York
Mexico
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO report. Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved. Major **
** divisions and subdivisions of the text, such as Chapters, **
** Sections, and Appendixes, are identified by double and **
** single lines. The numbers on the right end of these lines **
** indicate the position of each of the subsections in the **
** document outline. These numbers do NOT correspond with the **
** page numbers of the printed product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
** A printed copy of this report may be obtained from the GAO **
** Document Distribution Center. For further details, please **
** send an e-mail message to: **
** **
** <info@www.gao.gov> **
** **
** with the message 'info' in the body. **
******************************************************************
Before the Permanent Subcommittee on Investigations, Committee on
Governmental Affairs, U.S. Senate
Not to Be Released
Before 10:00 a.m. EST
Tuesday
November 9, 1999
PRIVATE BANKING
Raul Salinas, Citibank, and Alleged Money Laundering
Statement for the Record of Robert H. Hast
Acting Assistant Comptroller General for Investigations
Office of Special Investigations
*****************
<Graphic -- Download
the PDF file to view.>
*****************
GAO/T-OSI-00-3
See Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering
Madam Chairman and Members of the Subcommittee:
This statement provides the Subcommittee a synopsis of our
1998 investigation/Footnote1/ of alleged illegalities involving Raul
Salinas de Gotari, brother of the former President of Mexico, Carlos
Salinas de Gotari, and a U.S. bank, Citibank. We conducted the
investigation at the request of your Subcommittee's then Ranking Minority
Member, the Honorable John Glenn. Mr. Salinas had allegedly been involved
in laundering money out of Mexico, through Citibank, to accounts in
Citibank affiliates in Switzerland and the United Kingdom.
Results in Brief
----------------
Mr. Salinas was able to transfer $90 million to $100 million between
1992 and 1994 by using a private banking relationship formed by Citibank
New York in 1992. The funds were transferred through Citibank Mexico and
Citibank New York to private banking investment accounts in Citibank
London and Citibank Switzerland.
Beginning in mid-1992, Citibank actions assisted Mr. Salinas with these
transfers and effectively disguised the funds' source and destination,
thus breaking the funds' paper trail. Citibank
o set up an offshore private investment company named Trocca, to hold Mr.
Salinas's assets, through Cititrust (Cayman)/Footnote2/ and investment
accounts in Citibank London and Citibank Switzerland;
o waived bank references for Mr. Salinas and did not prepare a financial
profile on him or request a waiver for the profile, as required by then
Citibank know your customer policy;
o facilitated Mrs. Salinas's use of another name to initiate fund
transfers in Mexico; and
o had funds wired from Citibank Mexico to a Citibank New York
concentration account--a business account that commingles funds from
various sources--before forwarding them to Trocca's offshore Citibank
investment accounts.
No U.S. documentation identified Mr. Salinas as Trocca's beneficial
owner/Footnote3/ or connected Mr. Salinas to the Trocca funds transferred
through Citibank Mexico and Citibank New York.
According to Citibank New York's Vice President (VP) for Legal Affairs,
whom Citibank designated as its representative to us, Citibank's actions
violated only one aspect of the then Citibank know your customer policy:
Citibank should have prepared a financial profile (i.e., a financial
background check detailing the source of Mr. Salinas's funds) or waived
the requirement before accepting Mr. Salinas as a customer. By
investigating his financial background, Citibank could have verified the
source of
Mr. Salinas's wealth and transferred funds.
Limited by the ongoing Department of Justice investigation, we could not
determine whether Citibank's actions violated law or regulation. (We
determined that the case is still pending in the Southern District of New
York.) The Federal Reserve also did not comment on whether Citibank's
actions were violations because information available to it at the time we
inquired was insufficient for it to make a determination. However, on the
basis of the details we presented, the Office of the Comptroller of
Currency (OCC) stated that the actions did not violate civil aspects of
the Bank Secrecy Act./Footnote4/ Further, private banking's know your
customer policies were then voluntary and not governed by law or regulation.
A comparison of Citibank actions and Citibank testimony in the 1994 money
laundering trial shows that the two were inconsistent concerning due
diligence and know your customer practices in private banking. For
example, Citibank's testimony implied a stricter adherence to due
diligence than actually occurred during the Salinas transactions.
Background
----------
The provision of financial and related services to wealthy clients is
broadly described as "private banking." The Federal Reserve System and OCC
are two regulators that examine/Footnote5/ banks and private banking
activities. With regard to possible money laundering, examiners determine
whether
(1) banks comply with bank secrecy regulations and (2) the banks'
compliance programs include appropriate procedural guidelines for
recording and reporting large currency transactions and for detecting,
preventing,/Footnote6/ and reporting suspicious transactions related to
possible money laundering activities.
Regulators and most banks contacted during a previous GAO
review/Footnote7/ cited "know your customer" policies as one of an
institution's most important guidelines for detecting suspicious activity.
Such policies enable the institution to understand the kinds of
transactions that a particular customer is likely to engage in and to
identify unusual or suspicious transactions. In an effort to protect
itself from risks associated with money laundering and other unlawful
activity, Citibank, as have other financial institutions, has implemented
a know your customer policy to ensure that the bank will have a reasonable
level of information about a client at the time of acceptance.
Citibank Facilitated Salinas Funds Transfers
--------------------------------------------
Citibank New York accepted Mr. Salinas as a private banking customer and
created the shell company Trocca through Cititrust (Cayman) to hold
Mr. Salinas's assets. As part of Trocca, Citibank created other shell
companies and opened two investment accounts in Citibank London and
Citibank Switzerland. However, no official U.S. documentation clearly
connected Mr. Salinas to Trocca or the investment accounts. Disguising the
origin and destination of the funds, which broke the funds' paper trail,
was accomplished by, among other actions, the depositing of the Mexican
funds in a Citibank New York concentration account and Mrs. Salinas's use
of another name to initiate funds transfers in Mexico. (At the time of her
introduction to Citibank Mexico officials to begin the transfers,
Mrs. Salinas had not yet married Mr. Salinas. Although they were not
married until the year after the transfers had begun, we refer to her
throughout this testimony as Mrs. Salinas.) After Mr. Salinas's March 1995
arrest in Mexico, Citibank placed a watch on the Salinas accounts in
Citibank New York and Trocca's offshore investment accounts and prepared a
financial profile that did not mention Trocca. After
Mrs. Salinas's November 1995 arrest in Switzerland, Citibank filed a
criminal referral form/Footnote8/ with the U.S. Department of Justice but
again divulged no information about Trocca or the offshore accounts.
Citibank and Trocca
-------------------
In or about May 1992, Mr. Salinas met with the Vice President, Mexican
Division, International Private Bank section of Citibank New York, to
arrange a Citibank private banking relationship. At that time, Citibank
waived bank references for Mr. Salinas. It relied instead on the referral
of an existing client. In addition, Citibank did not follow its policy in
that it did not prepare a financial profile, or financial background
check, on
Mr. Salinas before accepting him.
Citibank, according to its representative, first opened a checking account
at Citibank New York in Mr. Salinas's name and then, through Cititrust
(Cayman), activated a private investment company named Trocca--a shell
company--to hold Mr. Salinas's assets./Footnote9/ The company was set up
in the Cayman Islands, where all documentation connecting Mr. Salinas to
Trocca was held and whose laws protect the documentation's confidentiality.
To further insulate Mr. Salinas's connection to Trocca, Cititrust (Cayman)
used three additional shell companies to function as Trocca's board of
directors--Madeline Investment SA, Donat Investment SA, and Hitchcock
Investment SA. Trocca's officer and principal shareholder was another
company formed by Cititrust (Cayman) named Tyler Ltd. Further, Confidas, a
Cititrust affiliate located in Switzerland, acted as Trocca's manager and
handled all administrative requirements.
As part of Mr. Salinas's private banking relationship, Citibank New York
opened two investment bank accounts for Trocca, one in Citibank London and
one in Citibank Switzerland. According to Citibank officials, Citibank
London had no documentation or knowledge that Mr. Salinas was Trocca's
beneficial owner. We were informed that Citibank Switzerland had
documentation of a connection between Mr. Salinas and Trocca, which is
required by and confidential under Swiss bank secrecy law.
The Funds Transfer
------------------
To facilitate the periodic wire transfer of Salinas funds from Mexico to
Citibank New York, Citibank New York's Mexican Division VP introduced Mrs.
Salinas, Patricia Paulina Rios Casta****ITCCentury Book:x96****on de
Salinas, to officials of Citibank Mexico under the name Patricia Rios. The
Citibank representative initially told us that Mrs. Salinas's true
identity and connection to
Mr. Salinas was disguised from Citibank Mexico officials reportedly
because Mr. Salinas did not want to reveal that he was moving large sums
of money out of Mexico. The Citibank representative stated that
introducing Mrs. Salinas as Ms. Rios had not violated Citibank policy.
Later, the representative and another Citibank official recanted the
position concerning Citibank Mexico's lack of knowledge. The officials
told us they had no documentation to support their new position.
Throughout the transactions, according to Citibank's representative,
Mrs. Salinas withdrew funds from what is believed to be at least five
Mexican banks/Footnote10/ and had the bank checks made payable to
Citibank. After obtaining the bank checks and hand carrying them to
Citibank Mexico, she--using the name Ms. Rios and although she had no
account there--had Citibank Mexico convert the value of the bank checks
from Mexican pesos to American dollars before it wired the funds to
Citibank New York. Documents supporting the transactions further
convoluted the paper trail, disguising the origin and destination of the
funds and preventing them from being traced to Mr. Salinas.
Citibank Mexico then wired the converted funds, at the direction of
Citibank New York's Mexican Division VP, to Citibank New York. The funds
went into a concentration account--a Citibank New York business deposit
account that commingles funds of a number of bank branches/affiliates and
bank customers.
Citibank next wired the funds from the concentration account to the Trocca
accounts in Citibank London and Citibank Switzerland. The two offshore
banks then invested the wired funds as directed by Citibank New York and
agreed to by Mr. Salinas. On occasion, however, Mr. Salinas had direct
contact, concerning his investments, with a private banker at Citibank
Switzerland where his confidentiality was ensured under Swiss bank secrecy
laws.
According to the Citibank representative, the funds wired through Citibank
Mexico and Citibank New York to Citibank London and Citibank Switzerland
totaled between $90 million and $100 million. This Citibank official and
others acknowledged that the fund transfers could have been wired to the
Salinas checking account in Citibank New York or directly to Citibank
London or Citibank Switzerland, thus retaining a paper trail.
The 1995 Salinas Arrests and Subsequent Account Actions
-------------------------------------------------------
In late February 1995, according to Citibank's representative, Mr. Salinas
was arrested and jailed in Mexico for murder./Footnote11/ At that time,
rather than before accepting Mr. Salinas as a customer as was Citibank
policy, Citibank prepared a very brief financial profile on Mr. Salinas.
The profile cited no Citibank/Trocca accounts and no source of wealth
other than a reference to an unidentified construction business.
Upon reportedly learning in early March 1995 that the arrested Mr. Salinas
was a Citibank private banking customer, the Citibank representative, as
Vice President for Legal Affairs, put a watch on the Salinas Citibank New
York accounts and Trocca's Citibank London and Citibank Switzerland
accounts. However, according to the Citibank representative, the Mexican
Division VP personally contacted Mrs. Salinas in Mexico in the summer of
1995, without the representative's knowledge or consent, and advised her
to move all funds associated with Trocca out of Citibank. Mrs. Salinas was
arrested in Switzerland in November 1995 for money laundering and drug
trafficking while attempting to withdraw funds from a Swiss bank.
After Mrs. Salinas's November 1995 arrest, according to the Citibank
representative, Citibank New York filed a criminal referral form with the
U.S. Attorney's Office, Southern District of New York, sending copies to
the Federal Bureau of Investigation and the Drug Enforcement
Administration. However, the only Salinas accounts listed on the form were
those in Citibank New York. The form did not cite the existence of Trocca
or the Trocca accounts in Citibank London or Citibank Switzerland,
purportedly because no official U.S. documentation existed although
Citibank New York had facilitated the accounts' formation.
According to Citibank's representative, Citibank earned about $1.1 million
in fees associated with the Salinas/Trocca accounts.
Citibank Violation of One Aspect of Know Your Customer Policy
-------------------------------------------------------------
Most of the actions of Citibank New York's Mexican Division did not
violate Citibank policy. However, the one aspect of Citibank's know your
customer policy that was violated--preparation of a financial profile--
could have assisted in verifying the source of Mr. Salinas's wealth and
transferred funds. Citibank policy was revised in 1997.
A Violation of Citibank Know Your Customer Policy
-------------------------------------------------
According to the 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. 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./Footnote12/
In addition, when opening Mr. Salinas's accounts, Citibank waived the
requirement for two references for him, including its most common
reference source, i.e., bank references, which could have contained such
information as length of association with the account holder and size of
the Mexican accounts. When asked if bank references were an important part
of Citibank New York's know your customer policy, the Citibank
representative stated that Citibank private bankers had told him that bank
references provided little value or information. We pointed out that if
bank references had been obtained and checked, Citibank could have
established the value of assets Mr. Salinas possessed in those banks and a
banking history of those assets, both significant points for determining
future suspicious account activity including money laundering.
Current Citibank Policy
-----------------------
Citibank's know your customer policy has been revised since the Salinas
accounts were opened. As of September 1997, the policy contained more
specific minimum standards of information for accepting a new customer.
However, at the time of our October 1998 report, any element of the policy
could still be waived for a new or existing customer.
Citibank's General Compliance With Laws and Regulations Was Undetermined
------------------------------------------------------------------------
We could not determine whether Citibank's actions regarding Mr. Salinas's
private banking relationship had violated then applicable laws and
regulations. We were denied access to Department of Justice officials
involved in the then ongoing investigation of the Salinas/Citibank
relationship. We were also denied access to the principal Citibank
officials involved with that relationship, although Citibank designated
bank officials to provide us with detailed information.
Comparison of Citibank's Actions With a Citibank Official's 1994 Testimony
--------------------------------------------------------------------------
The requested comparison of Citibank actions regarding Mr. Salinas and a
Citibank official's testimony in a 1994 money laundering case/Footnote13/
illustrated that the two were inconsistent. Citibank New York's actions
did not reflect the importance that its Mexican Division VP placed on the
bank's due diligence/know your customer practices when testifying.
The head of Citibank New York's Mexican Division, International Private
Bank section, who was also involved in the Salinas matter, appeared as an
expert witness for the government in the 1994 money laundering trial. In
sworn testimony, the division VP explained the importance of due diligence
principles and Citibank's know your customer policy in accepting and
working with private banking customers.
However, Citibank actions regarding Mr. Salinas contrasted sharply with
the VP's sworn testimony with concern to the importance of knowing the
customer. For example, the Citibank VP affirmed in sworn testimony that
Citibank New York's international relationship managers were to make an
extensive effort to know their potential customers, as a way of protecting
the bank, before accepting them. It was "too risky not to
****Symbol:xbc**** do the due diligence, not to know who you're dealing
with(c) before accepting a prospective customer's funds in a private
banking relationship. In contrast, Citibank made no attempt to investigate
Mr. Salinas's background before accepting him. Citibank was unable to
confirm if the division VP had met Mr. Salinas before accepting him as a
Citibank private banking customer. Further, Citibank did not file a
financial profile, or a financial background check, as part of due
diligence.
Conclusions
-----------
At the time of our investigation, the Congress and the Federal Reserve
recognized that financial institutions could abuse voluntary policies with
regard to potential money laundering. Further, we determined in the
Salinas scenario that Citibank's voluntary controls did not work.
Citibank, while violating only one aspect of its then policies,
facilitated a
money-managing system that disguised the origin, destination, and
beneficial owner of the funds involved. We determined that the Department
of Justice investigation of the Salinas/Citibank relationship is still
pending in the Southern District of New York.
Contacts and Acknowledgement
----------------------------
For further information regarding this testimony, please contact Robert H.
Hast or Ron Malfi at (202) 512-6722. John Ryan made a key contribution to
this testimony.
(600601)
--------------------------------------
/Footnote1/-^(GAO/OSI-99-1, Oct. 30, 1998).
/Footnote2/-^ Cititrust (Cayman) was an affiliate of Citicorp, located in
the Cayman Islands. Citicorp is now known as Citigroup, Inc.
/Footnote3/-^ An account's "beneficial owner" is the individual or group
that controls the account.
/Footnote4/-^ The Bank Secrecy Act is codified in 12 U.S.C. sections 1829b
and 1951-59 and in 31 U.S.C. sections 5311-30.
/Footnote5/-^ See 12 C.F.R. sections 21.21 (OCC) and 208.14 (Federal
Reserve) (1997).
/Footnote6/-^ Under 18 U.S.C. 1956, banks have a legal obligation to
prevent money laundering.
/Footnote7/-^ Private Banking: Information on Private Banking and Its
Vulnerability to Money Laundering (GAO/GGD-98-19R, Oct. 30, 1997).
/Footnote8/-^ The form has since been changed and is now known as the
suspicious activity report.
/Footnote9/-^As we noted in a previous report, Money Laundering:
Regulatory Oversight of Offshore Private Banking Activities (GAO/GGD-98-
154, June 29, 1998), banking regulators have expressed some concern that
such private investment companies, among other offshore entities, may
serve to camouflage money laundering and other illegal acts. This may
occur because these accounts are formed, among other reasons, to
maintain clients' confidentiality and anonymity.
/Footnote10/-^ Documentation listed the Mexican banks as Bancomer, Somex,
Banca Cremi, Banorte, and Banco Mexicano. According to knowledgeable
sources, Mr. Salinas's accounts at these banks were under fictitious
names.
/Footnote11/-^ Subsequently, Mexican law enforcement officials also
charged Mr. Salinas with money laundering and "illegal enrichment." It
has been reported that he was acquitted of one money laundering charge
in May 1998 and that the illegal enrichment charge was dropped. However,
as of October 1998 when our report was published, he remained in jail
pending resolution of the murder charge. It was then unclear whether
additional money laundering charges were still pending.
/Footnote12/-^ According to the Citibank representative, Citibank New
York's Mexican Division, International Private Bank section failed
Citibank's internal audits from 1996 to 1997. These failures occurred
because of problems and deficiencies in the Private Banking section's
due diligence and know your customer practices. The Citibank
representative was unable to provide the results of internal audits
conducted prior to 1996.
/Footnote13/-^ United States v. Giraldi, No. 93-CR-28-6 & 7 (S.D. Tx. 1994).
*** End of document. ***