United States General Accounting Office

GAO Report to the Ranking Minority Member,

Permanent Subcommittee on

Investigations, Committee on

Governmental Affairs, U.S. Senate

October 1998 PRIVATE BANKING

Raul Salinas, Citibank,

and Alleged Money

Laundering

GAO/OSI-99-1

GAO United States

General Accounting Office

Washington, D.C. 20548

Office of Special Investigations

B-281327 

October 30, 1998

The Honorable John Glenn

Ranking Minority Member

Permanent Subcommittee on Investigations

Committee on Governmental Affairs

United States Senate

Dear Senator Glenn:

On February 28, 1998, you expressed concern about reports that Raul

Salinas de Gotari, brother of the former President of Mexico, Carlos

Salinas de Gotari, had allegedly been involved in laundering money out of

Mexico through a U.S. bank, Citibank, to accounts in Citibank affiliates in

Switzerland and the United Kingdom. At that time, you requested that we

determine

• how Raul Salinas was able to transfer between $90 million and

$100 million from Mexico into foreign accounts through Citibank and its

affiliates;

• what functions and assistance Citibank performed for Mr. Salinas; and

• if Citibank’s actions complied with applicable federal laws and

regulations.

In later discussions with your office, we were also requested to provide a

comparison of Citibank’s practices during the Salinas transactions with its

testimony in a 1994 money laundering trial.1

 A summary of the resultant

1996 appeal,2

 which was also requested, appears in appendix I.

Currently, the U.S. Department of Justice, through the Office of the U.S.

Attorney, Southern District of New York, is conducting a criminal

investigation of the Salinas/Citibank transactions.3

 Because of the ongoing

investigation, the Department of Justice declined our request for an

interview. Citibank made available knowledgeable officials who provided

details about the Salinas transactions.

Background The provision of financial and related services to wealthy clients is broadly

described as “private banking.” The Federal Reserve System and the Office

1

United States v. Giraldi, No. 93-CR-28-6 & 7 (S.D. Tx. 1994).

2

United States v. Giraldi, 86 F. 3d 1368 (5th Cir. 1996).

3

Mexico and Switzerland are also conducting criminal investigations of Mr. and Mrs. Salinas, which

include the Citibank transactions.

Page 1 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
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of the Comptroller of the Currency (OCC) are two regulators that examine4

banks and private banking activities. With regard to possible money

laundering, examiners determine whether (1) banks comply with bank

secrecy regulations and (2) the banks’ compliance programs include

appropriate procedural guidelines for recording and reporting large

currency transactions and for detecting, preventing, and reporting

suspicious transactions related to possible money laundering activities.

Regulators and most banks contacted during a previous GAO review5

 cited

“know your customer” policies as one of an institution’s most important

guidelines for detecting suspicious activity. Such policies enable the

institution to understand the kinds of transactions that a particular

customer is likely to engage in and to identify unusual or suspicious

transactions. Although such policies are currently not required by

regulation or statute, banks do have a legal obligation to prevent money

laundering.6

 Bank regulators have developed examination procedures to

determine whether institutions have implemented sound know your

customer policies and procedures.

The Federal Reserve, which is drafting regulations regarding know your

customer issues,7

 has increased its interest in the private banking area for

a number of reasons: As the private banking market grows, (1) banks

increasingly rely on it as a source of income, (2) competition for wealthy

customers increases, and (3) relationship managers8

 experience

heightened pressure to expand their institutions’ private banking business.

This growth is also likely to increase interest in using private banking for

money laundering schemes.

In an effort to protect itself from risks associated with money laundering

and other unlawful activity, Citibank, as have other financial institutions,

has implemented a know your customer policy to ensure that the bank will

have a reasonable level of information about a client at the time of

acceptance. The policies are intended to enable institutions to

4

See 12 C.F.R. sections 21.21 (OCC) and 208.14 (Federal Reserve) (1997).

5

Private Banking: Information on Private Banking and Its Vulnerability to Money Laundering

(GAO/GGD-98-19R, Oct. 30, 1997).

6

18 U.S.C. 1956.

7

In October 1998, the Federal Reserve proposed that banks develop a profile of their customers’ typical

transactions and monitor them for deviations. Further, OCC expects to issue companion proposals

soon.

8

Relationship managers, also referred to as private bankers, are assigned to private banking customers

and are responsible for coordinating the institution’s services to benefit the customer.

Page 2 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
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(1) understand the types of transactions a customer is likely to engage in

and (2) identify unusual or suspicious transactions that could indicate

money laundering. Due diligence standards for private banking lay the

groundwork for these policies because the standards generally commit a

financial institution to verifying the customer’s identity, determining the

customer’s source of wealth, reviewing the customer’s credit and

character, and understanding the type of transactions the customer would

typically conduct. Under circumstances that Citibank deems appropriate,

these policies may be waived.

Results in Brief Mr. Salinas was able to transfer $90 million to $100 million between 1992

and 1994 by using a private banking relationship formed by Citibank New

York in 1992. The funds were transferred through Citibank Mexico and

Citibank New York to private banking investment accounts in Citibank

London and Citibank Switzerland.

Beginning in mid-1992, Citibank actions assisted Mr. Salinas with these

transfers and effectively disguised the funds’ source and destination, thus

breaking the funds’ paper trail. Citibank

• set up an offshore private investment company named Trocca, to hold

Mr. Salinas’s assets, through Cititrust (Cayman)9

 and investment accounts

in Citibank London and Citibank Switzerland;

• waived bank references for Mr. Salinas and did not prepare a financial

profile on him or request a waiver for the profile, as required by then

Citibank know your customer policy;

• facilitated Mrs. Salinas’s use of another name to initiate fund transfers in

Mexico; and

• had funds wired from Citibank Mexico to a Citibank New York

concentration account—a business account that commingles funds from

various sources—before forwarding them to Trocca’s offshore Citibank

investment accounts.

No U.S. documentation identified Mr. Salinas as Trocca’s beneficial

owner10 or connected Mr. Salinas to the Trocca funds transferred through

Citibank Mexico and Citibank New York.

9

Cititrust (Cayman) was an affiliate of Citicorp, located in the Cayman Islands. Citicorp is now known

as Citigroup, Inc.

10An account’s “beneficial owner” is the individual or group that controls the account.

Page 3 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

According to Citibank New York’s Vice President (VP) for Legal Affairs,

whom Citibank designated as its representative to us, Citibank’s actions

violated only one aspect of the then Citibank know your customer policy:

Citibank should have prepared a financial profile (i.e., a financial

background check detailing the source of Mr. Salinas’s funds) or waived

the requirement before accepting Mr. Salinas as a customer. By

investigating his financial background, Citibank could have verified the

source of Mr. Salinas’s wealth and transferred funds.

Limited by the ongoing Department of Justice investigation, we could not

determine whether Citibank’s actions violated law or regulation. The

Federal Reserve also did not comment on whether Citibank’s actions were

violations because information available to it at the time we inquired was

insufficient for it to make a determination. However, on the basis of the

details we presented, OCC stated that the actions did not violate civil

aspects of the Bank Secrecy Act.11 Further, private banking’s know your

customer policies are voluntary and not governed by law or regulation.

A comparison of Citibank actions and Citibank testimony in the 1994

money laundering trial shows that the two were inconsistent concerning

due diligence and know your customer practices in private banking. For

example, Citibank’s testimony implied a stricter adherence to due

diligence than actually occurred during the Salinas transactions.

Citibank Facilitated

Salinas Funds

Transfers

Citibank New York accepted Mr. Salinas as a private banking customer

and created the shell company Trocca through Cititrust (Cayman) to hold

Mr. Salinas’s assets. As part of Trocca, Citibank created other shell

companies and opened two investment accounts in Citibank London and

Citibank Switzerland. However, no official documentation clearly

connected Mr. Salinas to Trocca or the investment accounts. Disguising

the origin and destination of the funds, which broke the funds’ paper trail,

was accomplished by, among other actions, the depositing of the Mexican

funds in a Citibank New York concentration account and Mrs. Salinas’s

use of another name to initiate funds transfers in Mexico. (At the time of

her introduction to Citibank Mexico officials to begin the transfers,

Mrs. Salinas had not yet married Mr. Salinas. Although they were not

married until the year after the transfers had begun, we refer to her

throughout this report as Mrs. Salinas.) After Mr. Salinas’s March 1995

arrest in Mexico, Citibank placed a watch on the Salinas accounts in

11The Bank Secrecy Act is codified in 12 U.S.C. sections 1829b and 1951-59 and in 31 U.S.C. sections

5311-30.

Page 4 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

Citibank New York and Trocca’s offshore investment accounts and

prepared a financial profile that did not mention Trocca. After Mrs.

Salinas’s November 1995 arrest in Switzerland, Citibank filed a criminal

referral form12 with the U.S. Department of Justice.

Citibank and Trocca According to the Citibank representative, in or about May 1992 Mr. Salinas

met with the Vice President, Mexican Division, International Private Bank

section of Citibank New York, who also served as a senior relationship

manager. Mr. Salinas was introduced to the Citibank New York VP by

another of the VP’s private banking customers who was Agriculture

Minister in the Mexican government under Mr. Salinas’s brother, the then

President of Mexico. The purpose of the meeting was to arrange the same

type of Citibank private banking relationship for Mr. Salinas. Citibank

waived bank references for Mr. Salinas, relying instead on the referral of

the existing client. In addition, Citibank did not follow its policy in that it

did not prepare a financial profile, or financial background check, on

Mr. Salinas before accepting him. That acceptance, according to bank

signature cards, occurred in late May 1992.

Citibank, according to its representative, first opened a checking account

at Citibank New York in Mr. Salinas’s name. Using one of several Citibank

templates, Citibank New York then activated a private investment

company named Trocca—a shell company—to hold Mr. Salinas’s assets.13

Citibank activated Trocca through Cititrust (Cayman), which has an

inventory of dormant private investment companies ready to be assigned

to clients. The company was set up in the Cayman Islands, where all

documentation connecting Mr. Salinas to Trocca was held and whose laws

protect the documentation’s confidentiality. Trocca was set up primarily

for secrecy, tax advantages, and facilitating the distribution of assets to

Mr. Salinas’s family in case of his death, according to the Citibank

representative.

To further insulate Mr. Salinas’s connection to Trocca, Cititrust (Cayman)

used three additional shell companies to function as Trocca’s board of

directors—Madeline Investment SA, Donat Investment SA, and Hitchcock

Investment SA. Trocca’s officer and principal shareholder was another

12The form has since been changed and is now known as the suspicious activity report.

13As we noted in a previous report, Money Laundering: Regulatory Oversight of Offshore Private

Banking Activities (GAO/GGD-98-154, June 29, 1998), banking regulators have expressed some

concern that such private investment companies, among other offshore entities, may serve to

camouflage money laundering and other illegal acts. This may occur because these accounts are

formed, among other reasons, to maintain clients’ confidentiality and anonymity.

Page 5 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

company formed by Cititrust (Cayman) named Tyler Ltd. Further,

Confidas, a Cititrust affiliate located in Switzerland, acted as Trocca’s

manager and handled all administrative requirements. See figure 1.

Page 6 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

Figure 1: Trocca and Related Entities

Citicorp

Citibank

New York

Cititrust

(Cayman)

Trocca

Private Investment

Company

Tyler Ltd.

Officer & Principal

Shareholder

Board of Directors

(Cayman Islands)

Donat

Investment SA

Board Member

Hitchcock

Investment SA

Board Member

Madeline

Investment SA

Board Member

Confidas

(Swiss Administrative Corporation)

Citibank Switzerland

(Investment Account)

Citibank London

(Investment Account)

Citicorp and its affiliates

Formed to support Trocca

Page 7 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

As part of Mr. Salinas’s private banking relationship, Citibank New York

opened two investment bank accounts for Trocca, one in Citibank London

and one in Citibank Switzerland. According to the Citibank representative

and other Citibank officials, Citibank London had no documentation or

knowledge that Mr. Salinas was Trocca’s beneficial owner. However, these

officials subsequently contradicted themselves by stating that an assistant

to Citibank London’s Private Banking Officer did have information

concerning Mr. Salinas.14 The documentation, which they provided to

support this assertion, illustrated a paper trail that could not be

understood unless explained by someone involved in the transactions. We

were informed that Citibank Switzerland had documentation of a

connection between Mr. Salinas and Trocca, which is required by and

confidential under Swiss bank secrecy law.

The Citibank representative explained that the VP of Citibank New York’s

Mexican Division had discussed broad strategies with Mr. Salinas

concerning how to invest his money through Trocca. Citibank New York

relayed Mr. Salinas’s decisions to Citibank London and Citibank

Switzerland, which upon receipt of the Trocca funds invested them using

the specifics of the investment strategy.15 Confidas was then responsible

for tracking and reporting the profits/losses of the Trocca investments, as

well as for other administrative functions.

The Funds Transfer To facilitate the periodic wire transfer of Salinas funds from Mexico to

Citibank New York, Citibank New York’s Mexican Division VP introduced

Mrs. Salinas, Patricia Paulina Rios Castañon de Salinas, to officials of

Citibank Mexico under the name Patricia Rios. The Citibank

representative initially told us that Mrs. Salinas’s true identity and

connection to Mr. Salinas was disguised from Citibank Mexico officials

reportedly because Mr. Salinas did not want to reveal that he was moving

large sums of money out of Mexico. He added that Mr. Salinas believed

such knowledge could be harmful politically to his brother, the then

president of Mexico. The Citibank representative stated that introducing

Mrs. Salinas as Ms. Rios had not violated Citibank policy. Later, the

14During lengthy discussions with us in April-May 1998, the Citibank representative provided

information regarding key points discussed in this report and frequently provided documentation to

support his statements. In subsequent discussions, officials of Citibank New York recanted a few

points but provided no or convoluted supporting documentation. We will note these points where

appropriate.

15The Inspector in charge of Switzerland’s ongoing investigation of Mr. and Mrs. Salinas for money

laundering and drug trafficking has confirmed the accuracy of our investigative findings concerning

the flow of funds.

Page 8 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

representative and another Citibank official recanted the position

concerning Citibank Mexico’s lack of knowledge, saying that someone in

the Mexican bank knew both that the so-called Ms. Rios was connected to

Mr. Salinas and that the funds belonged to Mr. Salinas. The officials told us

they had no supporting documentation.

Throughout the transactions, according to Citibank’s representative,

Mrs. Salinas withdrew funds from what is believed to be at least five

Mexican banks16 and had the bank checks made payable to Citibank. The

representative acknowledged that it was possible that the bank checks

had been obtained by using cash and not funds withdrawn from Mexican

bank accounts. After obtaining the bank checks and hand carrying them to

Citibank Mexico, she—using the name Ms. Rios and although she had no

account there—had Citibank Mexico convert the value of the bank checks

from Mexican pesos to American dollars before it wired the funds to

Citibank New York.

Documents supporting the transactions further convoluted the paper trail,

disguising the origin and destination of the funds and preventing them

from being traced to Mr. Salinas. According to one internal document

provided by Citibank New York, Citibank Mexico documented one

conversion as being made by Tyler Ltd. (see fig. 1). Another document—an

internal Citibank Mexico transfer-confirmation document to

Confidas—was signed with the initials “PS” (Paulina Salinas). The initials

were used and accepted as a signature even though (1) bank officials

knew the signer as Patricia Rios and (2) for some of the signatures, she

was not yet married to Mr. Salinas.

Citibank Mexico then wired the converted funds, at the direction of

Citibank New York’s Mexican Division VP, to Citibank New York. The first

two wire transfers occurred on October 13, 1992. One transfer, which was

derived from a bank check drawn on Bancomer and which carried

Mr. Salinas’s signature, was deposited in the Salinas Citibank New York

checking account.17 The other transfer went into a concentration

account—a Citibank New York business deposit account that commingles

funds of a number of bank branches/affiliates and bank customers.

Subsequent wire transfers18 on behalf of Mr. Salinas went to the

16Documentation listed the Mexican banks as Bancomer, Somex, Banca Cremi, Banorte, and Banco

Mexicano. According to knowledgeable sources, Mr. Salinas’s accounts at these banks were under

fictitious names.

17These funds were not transferred to offshore Trocca accounts.

18The last check copy we viewed was dated in October 1994.

Page 9 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

concentration account.19 The use of (1) Tyler Ltd. as the “person”

requesting the Mexican funds conversion, (2) the name Patricia Rios,

(3) “PS” (Paulina Salinas) as the signature of Ms. Rios, and (4) the

concentration account deposits all served to break the paper trail of the

Mexican funds by disguising the origin and destination of the funds.

Citibank then wired the funds from the concentration account to the

Trocca accounts in Citibank London and Citibank Switzerland. See figure

2. The two offshore banks then invested the wired funds as directed by

Citibank New York and agreed to by Mr. Salinas. On occasion, however,

Mr. Salinas had direct contact, concerning his investments, with a private

banker at Citibank Switzerland where his confidentiality was ensured

under Swiss bank secrecy laws.

Figure 2: Flow of the Salinas Funds

Bancomer

Somex

Banca Cremi

Banorte

Banco Mexicano

Citibank

Switzerland

Citibank

London

Paulina

Salinas

alias

Patricia

Rios

Mexican

checks

hand

carried

Citibank

Mexico

U.S. dollars

wired

Citibank

NY's VP for

Mexican

Division

retrieves

and wires

funds

U.S. dollars

wired

Mexican

banks

No

account

Concentration

account

Trocca

investment

accounts

$

$

$ $

$

$

$ $

$

$

$

$ $ $

$ $ $

$

Paulina Salinas

1259 E. Anywhere Street

City, Mexico

19According to the Citibank representative, one additional wire transfer, amounting to $20 million, was

made to a Trocca account. The transfer originated from a Cayman Island bank account of Carlos

Peralta, an associate of Mr. Salinas. This wire transfer also went first to the Citibank New York

concentration account before being forwarded to a Trocca account.

Page 10 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
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According to the Citibank representative, the funds wired through

Citibank Mexico and Citibank New York to Citibank London and Citibank

Switzerland totaled between $90 million and $100 million. This Citibank

official and others acknowledged that the fund transfers could have been

wired to the Salinas checking account in Citibank New York or directly to

Citibank London or Citibank Switzerland, thus retaining a paper trail. The

representative stated, however, that Citibank had believed that the

movement of the funds could be expedited by having them deposited first

to the Citibank concentration account. When asked, the Citibank

representative could not explain how the transfers were thus expedited.

The 1995 Salinas Arrests

and Subsequent Account

Actions

In early February 1995, according to Citibank’s representative, the VP of

Citibank New York’s Mexican Division questioned Mr. Salinas concerning

media accounts about his possible involvement in a murder of a

government official that had taken place in Mexico. Mr. Salinas reportedly

denied any involvement. But later that month, Mr. Salinas was arrested

and jailed in Mexico for murder.20 At that time, rather than before

accepting Mr. Salinas as a customer as was Citibank policy, Citibank

prepared a very brief financial profile on Mr. Salinas. The profile cited no

Citibank/Trocca accounts and no source of wealth other than a reference

to an unidentified construction business.

Upon reportedly learning in early March 1995 that the arrested Mr. Salinas

was a Citibank private banking customer, the Citibank representative, as

Vice President for Legal Affairs, put a watch on the Salinas Citibank New

York accounts and Trocca’s Citibank London and Citibank Switzerland

accounts. Under the watch, he would have been notified by bank officials

if Mr. Salinas attempted to move funds in those accounts and had the

discretion to stop Mr. Salinas from doing so. However, according to the

Citibank representative, the Mexican Division VP personally contacted

Mrs. Salinas in Mexico in the summer of 1995, without the representative’s

knowledge or consent, and advised her to move all funds associated with

Trocca out of Citibank. Mrs. Salinas was arrested in Switzerland in

November 1995 for money laundering and drug trafficking while

attempting to withdraw funds from a Swiss bank.

20Subsequently, Mexican law enforcement officials also charged Mr. Salinas with money laundering

and “illegal enrichment.” It has been reported that he was acquitted of one money laundering charge in

May 1998 and that the illegal enrichment charge was dropped. However, as of October 1998, he

remained in jail pending resolution of the murder charge. It is unclear whether additional money

laundering charges are still pending.

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After Mrs. Salinas’s November 1995 arrest, according to the Citibank

representative, Citibank New York filed a criminal referral form with the

U.S. Attorney’s Office, Southern District of New York, sending copies to

the Federal Bureau of Investigation and the Drug Enforcement

Administration. One purpose of a criminal referral form was to notify law

enforcement officials concerning suspicious financial activities. However,

the only Salinas accounts listed on the form were those in Citibank New

York. The form did not cite the existence of Trocca or the Trocca accounts

in Citibank London or Citibank Switzerland, purportedly because no

official U.S. documentation existed although Citibank New York had

facilitated the accounts’ formation. At this time, Citibank updated

Mr. Salinas’s financial profile; but it still did not contain pertinent

information.

According to Citibank’s representative, Citibank earned about $1.1 million

in fees associated with the Salinas/Trocca accounts, which are still active.

Citibank Violation of

One Aspect of Know

Your Customer Policy

Most of the actions of Citibank New York’s Mexican Division did not

violate Citibank policy. However, the one aspect of Citibank’s know your

customer policy that was violated—preparation of a financial

profile—could have assisted in verifying the source of Mr. Salinas’s wealth

and transferred funds. Citibank policy was revised in 1997.

A Violation of Citibank

Know Your Customer

Policy

The Citibank representative stated that the Division VP’s failure to

complete a financial profile verifying Mr. Salinas’s financial history and the

source of his wealth or to request a waiver of this requirement violated

Citibank know your customer policy. These profiles would have included

information to help verify Mr. Salinas’s financial history and his source of

wealth. Citibank did not investigate Mr. Salinas’s background and did not

file a financial profile until after Mr. Salinas was arrested in February 1995.

According to the Citibank representative, Citibank New York’s Mexican

Division believed that all of Mr. Salinas’s funds had been obtained legally,

with a large portion resulting from the sale of a construction company that

he owned. However, Citibank reportedly knew no details about the

construction company including its name, who had purchased it, or the

Page 12 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
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amount of money generated by the sale.21 The representative also stated

that Citibank had waived the holding period on funds derived from the

bank checks brought to Citibank Mexico and wired to Citibank New York.

Although this procedure held an element of risk for Citibank, it had not

violated Citibank policy.

In addition, when opening Mr. Salinas’s accounts, Citibank waived the

requirement for two references for him. If Citibank had used its most

common reference source, i.e., bank references, it could have obtained

such information as length of association with the account holder and size

of the Mexican accounts. According to Citibank officials, the reference

waiver did not violate internal bank policy. Then bank policy also stated

that the reasons for waiving references should be documented and placed

in the account file. Citibank’s private banking application document, dated

May 28, 1992, cited “Known client & referred by a very valuable client of

long standing” as the reasons for waiving bank references.

When asked if bank references were an important part of Citibank New

York’s know your customer policy, the Citibank representative stated that

Citibank private bankers had told him that bank references provided little

value or information. We pointed out that if bank references had been

obtained and checked, Citibank could have established the value of assets

Mr. Salinas possessed in those banks and a banking history of those assets,

both significant points for determining future suspicious account activity

including money laundering. Such checks would have revealed if the

accounts were under fictitious names. In answer, Citibank officials

reiterated their position that bank references had little value.

Current Citibank Policy Citibank’s know your customer policy has been revised since the Salinas

accounts were opened. As of September 1997, the policy contains more

specific minimum standards of information for accepting a new customer.

However, any element of the policy can still be waived for a new or

existing customer if (1) approved by both the Market Region Head (e.g.,

Western Hemisphere Head) and the Regional Compliance and Control

Head representing the prospect’s or client’s country, (2) documented in

writing, and (3) placed in the account documentation file. Waiver approval

21According to the Citibank representative, Citibank New York’s Mexican Division, International

Private Bank section failed Citibank’s internal audits from 1996 to 1997. These failures occurred

because of problems and deficiencies in the Private Banking section’s due diligence and know your

customer practices. The Citibank representative was unable to provide the results of internal audits

conducted prior to 1996.

Page 13 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
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by the compliance/control head was not required when Citibank accepted

Mr. Salinas.

Citibank Compliance

With

Laws/Regulations

Generally

Undetermined; Recent

Federal Reserve

Guidance Regarding

Voluntary Policies

Although neither we nor the Federal Reserve could make a determination

concerning Citibank compliance with law or regulation, OCC stated that

Citibank’s actions did not result in civil violation of the Bank Secrecy Act.

However, recent Federal Reserve guidance pertains to voluntary know

your customer policies; and Federal Reserve representatives have

indicated that regulations are needed in the areas of those policies.

Citibank’s General

Compliance With Laws and

Regulations Was

Undetermined

We could not determine whether Citibank’s actions regarding Mr. Salinas’s

private banking relationship had violated then applicable laws and

regulations. We were denied access to Department of Justice officials

involved in the ongoing investigation of the Salinas/Citibank relationship.

We were also denied access to the principal Citibank officials involved

with that relationship, although Citibank designated bank officials to

provide us with detailed information.

We asked the Federal Reserve to comment on whether Mr. Salinas’s

private banking relationship with Citibank New York and Citibank’s

movement of Mr. Salinas’s funds had complied with then applicable laws

and regulations. According to Federal Reserve representatives, the facts of

the Salinas/Citibank matter, as known to the Federal Reserve when we

inquired, did not provide sufficient information for it to make a

determination about whether any law or regulation had been violated.

However, the Federal Reserve is continuing to monitor the Department of

Justice’s investigation.

We also briefed OCC officials, including OCC’s Director, Enforcement and

Compliance Division, on the Salinas/Citibank actions. At that time, we

requested that OCC provide us an opinion concerning whether these

actions had violated any banking law or regulation. OCC later stated, on the

basis of our description of the actions, that no civil violations of the Bank

Secrecy Act had occurred.

Page 14 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
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Recent Federal Reserve

Guidance

Although the Federal Reserve has been developing regulations concerning

know your customer policies, no regulation or law currently exists to

stipulate what know your customer policies should consist of or that they

must be followed.22 Further, any financial institution can deposit an

individual’s funds in the institution’s concentration account because no

law or regulation precludes it.

In 1996 and 1997, the Federal Reserve Bank of New York (FRBNY)

undertook an initiative on behalf of the Federal Reserve, focusing on

private banking at about 40 domestic and foreign banking institutions in

the FRBNY’s district,23 including Citibank New York. Deficiencies noted by

FRBNY centered primarily on poor internal controls and procedural

weaknesses involving such problems as insufficient documentation and

inadequate due diligence standards.

Recognizing that banks have a legal obligation to prevent money

laundering, FRBNY set out guidance in July 1997 as a result of its review.

That guidance focused primarily on the significance of sound voluntary

know your customer policies and procedures in managing risks inherent in

private banking activities. The guidance stated that sound know your

customer policies should require, among other elements, that a client’s

source of wealth and funds be corroborated and that, as an element of due

diligence, institutions obtain preferably detailed client references from

reliable, independent sources. It also stated that senior bank management

should expect compliance with these policies as a matter of course, that

waivers should be the exception, and that reasons for such exceptions

should be documented.

In addition, according to the guidance, sound practice for private banking

dictates that all client transactions go through the client’s own accounts

and not through the banking institution’s concentration or suspense

accounts. According to the guidance, going through concentration or

suspense accounts “effectively prevents association of the clients’ names

and account numbers with specific account activity, could easily mask

unusual transactions . . ., and could easily be abused.”

22The House of Representatives passed H.R. 4005, which required the Secretary of the Treasury to

promulgate know your customer regulations for financial institutions. The Senate was unable to

complete consideration of this bill during the 105th Congress. The bill’s overall purpose was to deter

money laundering.

23GAO/GGD-98-19R, Oct. 30, 1997.

Page 15 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

Further, representatives of the Federal Reserve have told us that a need

exists for regulation regarding know your customer practices and that

self-policing by some banking entities with regard to these practices is not

working.

Comparison of

Citibank’s Actions

With a Citibank

Official’s 1994

Testimony

The requested comparison of Citibank actions regarding Mr. Salinas and a

Citibank official’s testimony in a 1994 money laundering case24 illustrated

that the two were inconsistent. Citibank New York’s actions did not reflect

the importance that its Mexican Division VP placed on the bank’s due

diligence/know your customer practices when testifying.

The head of Citibank New York’s Mexican Division, International Private

Bank section, who was also involved in the Salinas matter, appeared as an

expert witness for the government in the 1994 money laundering trial. The

trial involved two private banking relationship managers employed by

American Express Bank International who were convicted. The Mexican

Division VP was a government witness, based on her position at Citibank

New York, concerning (1) the bank’s position on know your customer

issues and (2) her previous supervision of one of the defendants.25

In sworn testimony, the division VP explained the importance of due

diligence principles and Citibank’s know your customer policy in

accepting and working with private banking customers. The VP cited the

principles and policy as part of Citibank’s “culture” and “the way you do

things.” The VP said, in essence, that not knowing a customer’s background

could lead to a bank’s damaged reputation and penalties against the bank

and the individual relationship manager.

However, Citibank actions regarding Mr. Salinas contrasted sharply with

the VP’s sworn testimony with concern to the importance of knowing the

customer.

24United States v. Giraldi, No. 93-CR-28-6 & 7 (S.D. Tx. 1994).

25One defendant, Antonio Giraldi, had previously worked at Citibank New York as a relationship

manager for the Mexican Division VP and had a drug-money launderer from Mexico as a client while at

American Express Bank. The conviction of the two defendants was based largely on know your

customer matters. The case also resulted in the largest monetary penalty ever imposed on a bank

because of money laundering—$35 million in forfeitures, fines, and penalties.

Page 16 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

•Testimony—The Citibank VP affirmed that Citibank New York’s

international relationship managers were to make an extensive effort to

know their potential customers, as a way of protecting the bank, before

accepting them. It was “too risky not to . . . do the due diligence, not to

know who you’re dealing with” before accepting a prospective customer’s

funds in a private banking relationship.

Citibank’s Action—In contrast, Citibank made no attempt to investigate

Mr. Salinas’s background before accepting him. Citibank was unable to

confirm if the division VP had met Mr. Salinas before accepting him as a

Citibank private banking customer. Further, Citibank did not file a

financial profile, or a financial background check, as part of due diligence.

•Testimony—The Citibank VP considered the know your customer policy

as ongoing and not just for the initial customer-acceptance phase. As such,

according to the testimony, the VP and other Citibank relationship

managers visited customers’ homes and businesses frequently—“10 to 12

times a year in their country”—to “know what’s going on.” They discussed

prospective customers—including who referred them and what they did

for a living—with supervisors throughout the acceptance process, which

could take between 3 to 9 months.

Citibank’s Action—According to the Citibank representative, the Citibank

VP never visited Mr. Salinas’s place of business but may have visited his

home only after he had been accepted as a private banking customer.

Further, the division VP believed that the majority of Mr. Salinas’s wealth

had resulted from the sale of a construction company yet knew no

specifics about the sale, including the name of the company or the price

paid for it.

•Testimony—Citibank’s VP acknowledged during the testimony that no

reporting requirements were needed regarding the amounts or source of

funds transferred by wire (as were needed for cash transfers of $10,000 or

more) because most identifying information—source bank, source

account, amount transferred, target account, and target bank—was

automatically recorded. Only ownership of the accounts was not included.

Citibank’s Action—However, the automatic recorded information

provided with the transferred Salinas funds did not contain identifying

information as to the source of the funds. Further, Citibank actions

regarding these wire transfers defeated one main purpose of know your

customer policy—to help financial institutions identify unusual or

suspicious transactions. This purpose included knowing a transaction’s

origin and destination. Indeed, Citibank’s action obscured almost all of

that automatic information:

Page 17 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

• the Salinas funds did not originate at Citibank Mexico from where they

were wired;

• the Salinases did not have an account at Citibank Mexico;

• all funds that went into Trocca accounts were first wired to a

concentration account, not to an individual account, at Citibank New

York;

• the documentation in the United States that purportedly connects the

Trocca accounts or Mr. Salinas to the wire transfers from Citibank

Mexico requires an individual who is knowledgeable about the

transactions to explain the connection, since no official documentation

regarding the connections exists in the United States; and

• the Citibank London receiving account held no recognizable tie to 

Mr. Salinas and the Citibank Swiss account information is held under

Swiss secrecy law.

Status of Salinas Case

Citibank Although the Salinas/Trocca accounts have been frozen, they remain in

Citibank New York’s control. Citibank, with the cognizance of the

Department of Justice, continues to pay certain expenses of the Salinas

family, such as mortgage payments, from the family’s Citibank accounts.

In addition, Mr. Salinas continues to be a Citibank private banking

customer, according to the Citibank representative.

Department of Justice After the arrest in November 1995 of Mrs. Salinas, Citibank prepared and

delivered a criminal referral form to the U.S. Attorney for the Southern

District of New York. An investigation by the U.S. Attorney is ongoing.

Conclusions The Congress and the Federal Reserve have recognized that financial

institutions could abuse voluntary policies with regard to potential money

laundering. This is evident in HR 4005 and the Federal Reserve’s current

effort to promulgate regulations that establish minimum standards and

uniform requirements for know your customer policies. We determined in

the Salinas scenario that Citibank’s voluntary controls did not work.

Citibank, while violating only one aspect of its then policies, facilitated a

money-managing system that disguised the origin, destination, and

beneficial owner of the funds involved.

Page 18 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
B-281327 

Methodology Our investigation took place between February and September 1998. We

were denied access to Citibank principals and Department of Justice

investigative officials. However, we interviewed representatives of the OCC

and the Federal Reserve System and designated representatives of

Citibank. We also interviewed representatives of the Swiss Federal Police,

including the Inspector in charge of the ongoing Swiss investigation of the

money laundering and drug trafficking charges against Mr. and

Mrs. Salinas. We reviewed Citibank policies regarding private banking in

general. We also reviewed Citibank documents pertaining directly to the

Salinas private banking transactions. During discussions with us, Citibank

New York’s VP for Legal Affairs provided (1) information regarding key

points discussed in this report and (2) documentation to support certain

statements. In subsequent discussions, Citibank New York officials

recanted a few of those points but provided no or convoluted supporting

documentation. In addition, we obtained and reviewed federal court

transcripts and documents regarding a money laundering prosecution

pertinent to our investigation.

As agreed with your office, unless you announce its contents earlier, we

plan no further distribution of this report until 7 days after the date of this

letter. At that time, we will send copies of this report to interested

congressional committees, the Federal Reserve, and OCC. We will also

make copies available to others upon request. If you have questions about

our investigation, please contact Assistant Director Ronald Malfi at

(202) 512-6722. Major contributors to this report are listed in appendix II.

Sincerely yours,

Eljay B. Bowron

Assistant Comptroller General

 for Special Investigations

Page 19 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
Appendix I 

Appellate Decision Regarding 1994 Money

Laundering Trial

One defendant in the 1994 money laundering trial,26 Antonio Giraldi,

appealed his conviction. In the appellate decision,27 the court based its

decision to uphold the conviction, in part, on Mr. Giraldi’s responsibility as

a relationship manager “for screening potential clients to determine if their

wealth was legitimate,” which Mr. Giraldi had not done. The appellate

court concluded that the jury in Mr. Giraldi’s initial trial could have

reasonably determined that Mr. Giraldi had known or had been willfully

blind28 to the source of his customer’s funds, proceeds from a Mexican

drug lord. The court stated that Mr. Giraldi (1) had been specifically

charged with investigating and knowing his client, (2) had not followed

prescribed procedures before taking the initial deposit, and (3) had

extensive background and experience with international banking.

In denying Mr. Giraldi’s appeal of his guilty verdict, the court stated, “A

rational jury could have found it incredible that carelessness and honest

mistakes could account for the complexity of financial gerrymandering

required to give [the Mexican drug-money launderer’s] transactions the

appearance of legitimacy.” The court held that had know your customer

practices been used, the wealth of Mr. Giraldi’s client would have been

exposed as illegitimate.

26United States v. Giraldi, No. 93-CR-28-6 & 7 (S.D. Tx. 1994).

27United States v. Giraldi, 86 F. 3d 1368 (5th Cir. 1996).

28U.S. money laundering law requires that (1) a person “know” that a financial transaction represents

proceeds of an unlawful activity or (2) proof be provided of the person’s “willful blindness”—the

conscious avoidance of knowledge of facts—to an illicit origin. (18 U.S.C. 1956) Courts have held that

circumstantial evidence is sufficient to prove such knowledge and have equated willful blindness with

actual knowledge in a money laundering prosecution.

Page 20 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
Appendix II 

Major Contributors to This Report

Office of Special

Investigations,

Washington, D.C.

Ronald D. Malfi, Assistant Director for Financial and General Investigations

John J. Ryan, Senior Special Agent

M. Jane Hunt, Senior Communications Analyst

Office of the General

Counsel, Washington,

D.C.

Barbara C. Coles, Senior Attorney

(600459) Page 21 GAO/OSI-99-1 Raul Salinas, Citibank, and Alleged Money Laundering
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