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U.S. criminal charges against Citigroup could mean big damage to its reputation

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President Donald Trump at a rally in Miami, Fla., on Friday, Oct. 5, 2018. (David Goldman/AP Photo)

The Justice Department has fined Citigroup for “longstanding” internal problems related to how it safeguards against a wide range of financial scams, including money laundering, tax fraud and investment fraud.

The bureau’s civil penalty is the largest ever for such violations.

The charges follow a period of heightened attention on money laundering and financial crime by the Justice Department. In April, Citigroup agreed to pay a $8.9 billion fine to settle charges that it violated regulators’ sanctions on Iran and other countries and purposely misled government investigators.

U.S. authorities have increasingly targeted Wall Street and big banks since the financial crisis of 2008. Regulators have forced banks to pay billions in fines, which has resulted in relatively small numbers of top executives being forced out of their positions.

Overall, the Justice Department has imposed more than $185 billion in fines against banks and money-laundering or securities-fraud cases since 2011, according to information from the bureau and other watchdog groups.

The largest fines have been for money laundering, especially in Latin America and Africa, but also for launder trade finance cases involving Iran, Libya, Sudan and Myanmar. The single largest U.S. financial penalty ever was a $1.9 billion fine levied against Goldman Sachs for illegally selling mortgage bonds to customers who thought they were buying investment securities, but were actually betting against the market.

The Federal Reserve said in a statement on Friday that it had ordered Citigroup to put in place new policies to address the lapses that led to the violations, which it found in 2011 and 2012 and continued into this year.

The cost to Citigroup, the largest U.S. bank by assets, of the Justice Department investigation, and related other legal proceedings, are estimated at $3.5 billion.

Citigroup and JPMorgan Chase Bank, a subsidiary of JPMorgan Chase & Co., had been named in a 2010 investigation into two major law firms, the Greenberg Traurig and Cravath Swaine & Moore, who were hired by Citigroup to defend the bank from the 2011 Justice Department case.

Prosecutors found that one of the firms, Greenberg Traurig, charged Citigroup $750,000 to look at a study of money-laundering operations in Latin America by law enforcement agencies in Brazil and Colombia, and another $1.2 million to do the same in South Africa, the investigators said.

The Federal Reserve said on Friday that, starting in 2015, Citigroup held off using the law firms to further examine the region, continuing to rely instead on an external third-party consulting company for such tasks. That arrangement, which it said “did not adequately protect the bank from any potential non-compliance risks,” didn’t go far enough to ensure that Citigroup’s actions could be reviewed more thoroughly, regulators said.

They also found that the Justice Department had been unable to conduct interviews with directors of the two law firms, until this year when the law firms agreed to return the $850,000.

Citigroup had also relied on Cravath Swaine & Moore to address concerns about its own compliance with law enforcement agencies in the United States and overseas, including the European Commission, another regulator.

The regulators ordered Citigroup to stop using those law firms until it had improved its internal policies and procedures.

Officials at the Justice Department didn’t immediately respond to requests for comment.

Citigroup’s stock declined 1.5 percent on Friday, and is down 5.4 percent for the year.

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