Citigroup Inc. Continues Damage Control after Alleged Oceanografia Fraud

Citigroup, Inc. is strengthening its law enforcement to combat accounting fraud.

Whether it involves misdirecting or misusing funds, understating expenses, overstating revenues, underreporting liabilities, or overstating assets, accounting fraud is relatively common. It does not always make national news, however. Information surrounding “creative” accounting practices within Citigroup, Inc. unfolded earlier this year, and may finally have peaked.Earlier this week, Citigroup, Inc. announced that it has fired an additional 11 employees related to the allegations of accounting fraud pertaining to its Mexican subsidiary. Those that have been terminated were managing directors, two of whom headed business in Mexico. Citigroup’s CEO Michael Corbat released a memo announcing these updates to employees. He reported, “We have unfortunately identified additional employees across business and functional lines whose actions or inactions failed to protect our company from this fraud.” The memo also indicated that a multitude of other employees are likely to face disciplinary action.

This disclosure emphasized the magnitude of the allegations, which stipulate that the bank lost approximately $400 million. Citibank’s Mexican unit, Banamex, lent the money to Oceanografia, an oil-services company. Oceanografia has been unable to satisfy its debt, and may have tampered with invoices to the Mexican oil corporation, Pemex, that were offered as security. One employee had previously been fired due to the scandal.

Since the revelation of this fraud in February, Citigroup has discovered more corrupt loans that are linked to Oceanografia and another oil services company. With these loans, total losses near $565 million. In the memo, Corbat indicated that a full investigation is taking place, and that the bank intends to hold all guilty parties accountable. He went on to state that Citigroup is “strengthening any area we think falls short of our global standards and best practices,” and that law enforcement “will make any determinations as to criminal liability.”

Economic crimes, such as accounting fraud, are unfortunately on the rise. According to Pricewaterhouse Coopers’s Global Economic Crime Survey 2014, nearly half of US organizations experienced some type of fraud in the past two years – this is more than the global average of 37 percent. Also, more than half of these organizations reported an increase in the number of occurrences. Statistics like these are the reasons legal prosecution and full accountability is necessary.

Do you think Citigroup is doing enough to combat accounting fraud?

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