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Japan FSA punishes Citi for lax oversight

JAPAN yesterday ordered Citigroup to suspend sale promotions for a month at its retail bank for lax oversight against money laundering, in the struggling United States bank's second brush with Japanese regulators in five years.

The Financial Services Agency said Citigroup had not developed adequate systems to detect suspicious transactions such as money laundering, citing the same violation that led the regulators to close its private banking business in 2004.

Citigroup, which has 35 branches and generates about US$2 billion in revenue a year from its retail and corporate banking division, Citibank Japan, apologized for the breach, saying it stemmed from the way it reported suspicious transactions.

"If Citibank cannot get its house in order, its operations in Japan may come under threat," said Neil Katkov, head of Asia research for financial services consultancy Celent.

"We have seen banks in the US shut down for alleged loose money laundering compliance, and this is a sign that Japanese regulators are getting tougher."

The suspension comes as Citigroup tries to sell assets in Japan, an integral part of its efforts to raise cash after suffering more than US$85 billion in losses on toxic assets and receiving a US government bailout.

The bank agreed last month to sell its Japanese brokerage and investment banking assets to Japan's third-largest bank for about US$5.9 billion.

It is also looking to sell its Japanese asset management arm, Nikko Asset Management, and telemarketer Bellsystem24 Inc, sources have told Reuters. The deals are expected to raise more than US$1 billion each.

The FSA said Citigroup had not made improvements since the last regulatory crackdown in 2004, which prompted then chief executive Charles Prince to make a public bow of apology in Japan, a custom for Japanese executives showing remorse.


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