TOKYO — Japan's Financial Services Agency is nearing completion of an investigation into the local arm of U.S. financial giant Citigroup Inc. on suspicion of lax compliance, with questions remaining over anti-money laundering controls, and will likely issue sanctions as early as next month, people familiar with the matter said Friday.
In what could trigger Citi's third major sanction in Japan in seven years, the banking watchdog has found that the bank didn't provide sufficient disclosure about financial products such as investment trusts when selling them to customers and failed to adequately screen customers for product suitability, the people said.
Additionally, the FSA is still examining whether anti-money laundering controls might have been lax, one of the people said. Citigroup Chief Executive Vikram Pandit was in Tokyo earlier in September and had a meeting with FSA officials to discuss the probe, the people added.
The FSA was not immediately available for comment. A spokeswoman at Citigroup Japan declined to comment.
How severe any FSA sanction might be has yet to be decided, but given the previous problems, one option open to the FSA might be to order the bank to suspend its retail operations for a certain period, one of the people said.
Any fresh FSA sanction will come as a blow to Citi as it seeks to expand business in Asia. It will also revive memories in Japan of 2004 when the FSA took administrative and punitive actions against Citibank Japan in connection with multiple violations of laws and regulations by the bank's private banking and other divisions.
The bank was forced to close its private bank, and the image of the former head of Citigroup's Japanese operations, Douglas Peterson, and then-Citi chief executive Chuck Prince adopting the formal Japanese custom of bowing deeply to apologize at a press conference left a lasting impression.
Five years later, the FSA ordered Citibank Japan to suspend sales activities at the bank's retail business, including advertising, for a month for what it called lax policies to protect against money laundering.
In the wake of the financial crisis in 2008, Citigroup's Japan arm scaled back some operations by selling its securities business - mainly the brokerage Nikko Cordial Securities to Japanese bank, Sumitomo Mitsui Financial Group Inc. and its asset management unit, Nikko Asset Management to Sumitomo Trust & Banking Co.
Currently, Citigroup Japan offers services in retail, corporate and investment banking businesses as well as credit cards.
The Citigroup investigation also comes as the FSA flexes its muscles with other international banks.
Barclays Capital Japan Ltd. said Friday it has been ordered by the FSA to temporarily suspend its proprietary equity trading operations in Japan between Oct. 11 and Oct. 24, due to improper handling of technical problems related its order system. It said the FSA has also imposed a business operation improvement order on the house.
Overall in Asia, Citi has continued to expand its network close to 700 branches. It has US$240 billion in deposits in the region, up 10% this year. The bank says it is the largest wealth manager in Asia with about US$200 billion in assets under management in the region.
