Five years after Citigroup became a symbol of all that was wrong with big banks, the country's third-largest bank appears to be bracing for a new round of scrutiny into its ethics.

Citigroup said Friday it had found evidence of fraud in its Mexican operations, related to $585 million of loans that unit had made to an oil-services company. The apparent fraud forced Citi to restate its most recent earnings, lowering its fourth-quarter and overall 2013 profit by $235 million after taxes. It also inspired some unusually blunt, and angry, public language from Chief Executive Michael Corbat.

Bank employees who fail to meet the highest ethical standards "jeopardize everything we work for. We now have a galling example of what happens when people fail this basic requirement," Corbat wrote in a memo to employees on Friday.

He cited the hit to Citigroup's profit and added, "The impact to our credibility is harder to calculate."

Earlier in February, Corbat said Citigroup had found evidence that some employees were violating the bank's ethical standards, and demanded that they report any breaches of Citigroup's internal rules or code of conduct.

"As much as I hate to say it, it appears that even now — five years after a crisis in which the financial services industry shouldered its fair share of blame — there are some people who still don't get it," Corbat wrote to employees earlier this month.

"In the sixteen months I've been CEO, there have been instances in which people have violated our code of conduct and disrespected our values. It should go without saying that even one is too many," he added, warning that in certain cases, the bank would report violations "to the appropriate authorities."

Corbat sent that earlier memo on Feb. 12 — a day after the bank now says it first became aware of a potential problem with its Mexican oil-services customer.

The company, Oceanografia S.A. de C.V., had been a supplier to the government-owned oil company Petr-leos Mexicanos, or Pemex, and had used Citigroup loans to finance accounts receivable. But on Feb. 11, Citigroup became aware that Pemex had suspended Oceanografia from receiving any more government contracts, the bank said on Friday. After reviews, Citigroup says it can validate only about $185 million of the $585 million in credit it has extended to Oceanografia.

The fraud is a particularly unwelcome development at Citigroup, which has spent the past five years trying to live down its recent legacy as the almost-failed, thrice-bailed-out colossus of the financial crisis. The bank's unwieldy size, risky pre-crisis mortgage lending and securitization activities and eventual near-collapse made it a particularly large post-crisis target for regulators, shareholders, politicians and protestors.

Corbat and his predecessor, Vikram Pandit, have worked hard to change Citigroup's image since then. In the past five years, Citigroup has overhauled its board to improve risk management; abandoned operations in some countries and businesses it no longer considers part of its "core" banking operations; and shrunk itself even more by selling off others.

The bank's recovery has had hiccups, most notably when Pandit was abruptly and dramatically pushed out by the board in 2012. But for a couple of years before his exit, Pandit was a relatively quiet and unflashy leader for Citigroup, who gave earnest speeches about "responsible finance" and the banking industry's need to embrace regulatory reform.

It's a language that Corbat, a longtime Citi executive and also a low-key public figure, has adopted during his stint as CEO. His Feb. 12 memo repeatedly mentions "responsible finance" and the impact of any failures on the company's reputation: "Ethics is an area where we must have zero tolerance for breaches.... They undermine credibility with our clients, regulators, investors and the public — not to mention the enormous financial costs that can result."

In his Friday memo, Corbat also said that Citigroup has been continuing its inquiry into the fraud, coordinating its response with law enforcement authorities in Mexico, "pursuing recovery of the misappropriated funds, and seeking accountability for anyone involved."

Citigroup has received grand jury subpoenas from the Federal Deposit Insurance Corp. and the U.S. attorney's office for Massachusetts, the bank disclosed in a regulatory filing on Monday. The authorities are investigating Citigroup and its Mexican subsidiary over its compliance with the Bank Secrecy Act and anti-money laundering requirements, the bank said. The filing did not say whether the inquiries are specifically related to Citigroup's dealings with Oceanografia.

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