Business & Real Estate

California announces record settlement with Citigroup subsidiary

The California Department of Business Oversight said Wednesday that Citigroup Inc. subsidiary Banamex USA will pay the state $40 million in civil penalties to resolve allegations that it violated federal laws requiring banks to maintain adequate programs against money laundering.

The department said the penalty is the largest ever assessed by the department against a bank.

Banamex USA is a California state-chartered commercial bank, with about 300 employees, assets of more than $500 million and branches in Los Angeles, San Antonio and Houston. BUSA is an indirect wholly owned subsidiary of Citi and an affiliate of Banco Nacional de Mexico (Banamex, for short). Citi acquired BUSA when it purchased Banamex in August 2001. BUSA, then named California Commerce Bank, was a subsidiary of Banamex.

“Banamex (USA) agreed three years ago to correct numerous weaknesses in its anti-money laundering program. It has failed to do so,” Commissioner Jan Lynn Owen said in a statement from the Department of Business Oversight. “This new agreement holds Banamex appropriately accountable for its continued violations.”

And it appears to spell the end of BUSA.

New York-based Citigroup said Wednesday it “has decided to wind down banking operations at BUSA, subject to a satisfactory liquidation plan.”

Citi said BUSA intends to close its Houston and San Antonio branches in October, but the Los Angeles branch “will remain open through the wind-down process.”

The Banamex-BUSA business structure was designed in part to streamline the transfer of funds between the United States and Mexico, but the U.S. government has been closely monitoring such operations to make sure safeguards are in place to prevent corruption and illegal activities.

On Wednesday, the Federal Deposit Insurance Corp. announced a $140 million civil penalty against Banamex in connection with violations of the Bank Secrecy Act and money laundering laws and regulations. FDIC said its penalty “will be satisfied in part” by California’s settlement. Officials said that the feds will “net” $100 million in the overall settlement. The FDIC penalty will be paid to the U.S. Department of the Treasury.

According to California and FDIC records, Banamex on Aug. 2, 2012, entered a consent order. The order required Banamex to take actions in more than 20 areas to correct alleged violations, including requirements to report suspicious activity by customers.