Japan ordered Citigroup to suspend sales for a month at its retail banking division for lax oversight against money laundering, in the struggling US bank’s second brush with Japanese regulators in five years.
The Financial Services Agency said Citigroup had not developed adequate systems to detect suspicious transactions like money laundering, citing the same violation that led the regulators to close its private banking business in 2004.
Citigroup has 35 branches and generates about $2 billion in revenue a year from its retail and corporate banking division, Citibank Japan.
“If Citibank cannot get its house in order, its operations in Japan may come under threat,” said Neil Katkov, head of Asia research for financial services consultancy Celent. “We have seen banks in the US shut down for alleged loose money laundering compliance, and this is a sign that Japanese regulators are getting tougher.”
The suspension comes as Citigroup tries to sell assets in Japan, an integral part of its efforts to raise cash after suffering more than $85 billion in losses on toxic assets and receiving a US government
The bank agreed last month to sell its Japanese brokerage and investment banking assets to Sumitomo Mitsui Financial Group, Japan’s third-largest bank, for about $5.9 billion.
It is also looking to sell its Japanese asset management arm, Nikko Asset Management, and telemarketer Bellsystem24 Inc, sources said. Both deals are expected to raise more than $1 billion each.
In a statement the FSA said the suspension would not prevent sales of financial products when the customer seeks to make the purchase on their own accord.
The FSA said Citigroup had not made improvements since the last regulatory crackdown in 2004, which prompted then-chief executive Charles Prince to make a public bow of apology in Japan, a custom for Japanese executives showing remorse.
The FSA said the lack of compliance showed Citigroup executives "...lack an understanding of the rules applied in Japan, like laws and regulations, and an awareness of improvement.”