Posted on: Saturday, September 18, 2004
Citibank operation in Japan shut down
Associated Press
TOKYO — Japanese financial authorities announced yesterday they will shut down Citibank's private banking business in the country after finding "severe legal violations" in its operations.
The Financial Services Agency, in one of the harshest penalties ever handed down against a bank in Japan, ordered that private banking operations be suspended starting Sept. 29, putting an end to all new transactions. The government said it plans to revoke Citibank's private banking licenses in September of next year to discontinue that business entirely.
Citibank in Japan, part of New York-based Citigroup Inc., said yesterday that it accepts the orders and will comply with them.
The FSA's action was in response to a request from the Securities and Exchange Surveillance Commission of Japan, the nation's stock market watchdog, which recently inspected Citibank Japan's private banking operations and identified violations by the bank and its employees.
Citibank Japan issued an apology and said it will work to prevent a recurrence of the violations.
"These sanctions demonstrate the serious consequences of failing to comply with regulatory requirements and violating our business standards," Citigroup chief executive Charles Prince and Robert Willumstad, the president and chief operating officer, said in a statement to employees. "We deeply regret the problems that led to the FSA's actions in Japan."
Citibank Japan said it will strengthen internal control systems to abide by local laws. Six officers have left Citibank to accept responsibility for the problems in Japan, the compensation of eight employees have been reduced and other employees have received formal reprimands, it said.
Citibank said it had also agreed to create a new CEO position to manage its Japanese business, and had named executive Douglas L. Peterson to the job.
The FSA said it also ordered Citibank to refrain from accepting foreign currency deposits from new customers for one month starting Sept. 29.
All banking services provided to existing retail customers will be unaffected by the sanctions, Citibank said.
Japanese regulators said they decided on the sanctions after finding a large number of "severe legal violations" and "extremely inappropriate transactions" at the four offices where Citibank conducts its private banking business. Those offices are in Tokyo's Marunouchi district and in the cities of Nagoya, Osaka and Fukuoka.
Article 27 of Japan's Banking Law allows the government to revoke banking licenses when a financial institution acts in a manner detrimental to public interest.
The punishment is the strongest against a bank since a Credit Suisse unit's license was pulled in 1999, according to FSA officials quoted by the Wall Street Journal. The officials said details of the investigation have been passed on to another regulatory body that might consider criminal charges separately.
Shares of Citigroup fell 23 cents to close at $46.95 yesterday on the New York Stock Exchange.
