The Justice Department may use its inquiry into a burgeoning scandal at Citicorp as a warning to other banks to know their customers, an international banker said Wednesday.
The Justice Department probe into millions of dollars in transfers handled by Citicorp for the brother of former Mexican president Carlos Salinas de Gortari could hit the New York money-center bank "very hard," the banker said.
"Compliance with 'know your customer' guidelines is a hot ticket, and regulators want to make an example out of this case," said the banking executive, who refused to be identified. "This is going to trickle down to individual bankers."
The Justice Department confirmed Tuesday it is looking into the transfer of more than $100 million by Citicorp into accounts in New York and Switzerland on behalf of Raul Salinas. Mr. Salinas is currently under arrest in Mexico City on suspicion of having obtained the funds illegally.
A senior Federal Reserve Board official involved with efforts against money laundering said banks cannot accept cash from people they know, or should have known, broke the law. Penalties include up to 20 years in jail for bank officials, million-dollar fines, and even loss of deposit insurance.
Citicorp chairman John Reed, speaking at the bank's annual meeting in April, denied that the bank had ever laundered money. "To my knowledge, nothing we have done could be put under the heading" of improper, he said.
The bank said Wednesday it plans to "cooperate fully with authorities investigating this matter," and that it had no reason to believe that any of its employees violated any laws.
Analysts doubted the investigation will have any significant financial impact for the bank, but added that it was clear Citicorp had slipped. "Should somebody at Citi have asked: 'Where does this guy get his money from?' The answer is 'yes,'" said Lawrence Cohn, a banking analyst with PaineWebber Inc.
Carl Stern, a spokesman for the Justice Department, said the department had been working with Mexican and Swiss authorities on the case. But Mr. Stern said Swiss laws restrict what information the government can disclose. "Our ability to follow this has fallen short of what we originally contemplated," he said. "As a result, we opened our own inquiry, independent of our work helping the Swiss and Mexicans."
Karen Talley and Jaret Seiberg contributed to this story.