The Citigroup Watch

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      ICP has published a (double) book on the topic of predatory lending.  The Pittsburgh City Paper of Dec. 11, 2003, says that the "novel Predatory Bender: A Story of Subprime Finance may, in fact, be the first great American lending malfeasance novel," and mentions CitiFinancial. Click here for that review; click here for sample chapters, an interactive map, and ordering information.

May 27, 2004 update: vindicating many of ICP's assertions, on May 27, 2004, the Federal Reserve announced a cease-and-desist order against CitiFinancial, for predatory lending and for what the Fed refers to as "misleading examiners" -- basically, as documented by ICP in real time throughout the Web site, Citigroup told employees to lie, threatened to sue whistleblowing employees, and tried to hide and shred documents. Click here for the Fed's 5/27/04 press release, click here for a PDF of the Fed's 14 page order; click here for ICP's current CitiWatch report (the May 27, 2004 Update describes how the world's biggest bank is still run by predatory lenders, document shredders, silencers of whistleblowers....For or with more information, contact us.

    ....Citigroup, formed by the 1998 merger of Travelers and Citicorp, is the largest U.S.-based bank holding company. It engages in questionable high interest rate lending in low income communities across the United States, through its CitiFinancial unit.  On September 6, 2000, Citigroup announced that a deal to acquire another large subprime lender, The Associates (see Update of September 11, 2000, below).    Though its investment bank, Citigroup underwrites and trades in pools of loans issued by other predatory lenders. And globally, Citigroup finances and is involved in such environmentally destructive projects as the Chad-Cameroon pipeline, and China’s planned Three Gorges dam (which would displace two million people, creating a 400 mile reservoir on top of polluted former industrial sites).

       Inner City Press / Community on the Move's (ICP's) initial focus on Citibank was on its branch closings, and disparate mortgage lending.  ICP filed an extensive opposition to the Citicorp - Travelers merger application (click here to view).  ICP continued to watchdog and document Citigroup's record, in connection with Associates First Capital, European American Bank, Banamex and Golden State Bancorp.  This is the 2000 - 2001 archive; Inner City Press / Fair Finance Watch's Citigroup Watch continues, here.  For or with more information, contact us.

Update of January 7, 2002: Last week Citigroup's Deryck Maughan was named a knight of the British Empire by Queen Elizabeth II. Various media accounts noted that Mr. Maughan "is believed to be a possible successor to Sanford Weill, Citi's chairman and chief executive." Citigroup quickly fired back: "Sandy plans to continue running this company for the next several years. He has also indicated that when the time comes his successor will come from the top ranks of the company."

   Meanwhile, at a holiday party in Brooklyn attended by too many Citigroupies to count, ol' Sandy was repeatedly referred to as "Sandy Vile" -- that's with a "V," as in villainous. This moniker, widely used within Citigroup, has not yet appeared in Citigroup's promotional materials. Nor does Citigroup's continuing environmental woes. In Colorado, the Denver Post of Jan. 2 editorialized that "[t]he proposed Shattuck settlement lets the property owner, a Citigroup unit, off the hook too lightly... The public has until mid-January to comment on the settlement... If enriched uranium or other highly radioactive materials are found at the site, the settlement says Shattuck will pay more of the clean-up's costs... These provisions must be iron-clad; taxpayers must not suffer if Shattuck was wrong about what's at the site." Citigroup lobbies; Citigroup's too-big-too-fail.

Update of December 31, 2001: The week between Christmas and New Years being slow, even for Citigroup, we'll focus this report on Citigroup's campaign contributions. The Los Angeles Times of December 30 names Citigroup as California governor Gray Davis' largest out-of-state supporter, at $250,000. Meanwhile, federal "soft money" reports for September, the release of which were delayed by the various rounds of anthrax scares in Washington, reveals that "Citigroup, Inc., Sioux Fall, S.D." donated $40,000 to the National Republican Senatorial Campaign on September 25, 2001. A response to the events of 9/11, no doubt....

Update of December 24, 2001: On December 19 Citigroup announced that it plans to sell about 20 percent of Travelers Property Casualty to the public in a stock offering by the end of March. The rest of the company would be distributed to Citigroup shareholders by the end of 2002. Sandy Weill explained the spin-off plan: "because the property-casualty insurance business still has lower growth rates and returns than Citigroup's other businesses." Yep -- businesses like still-stardardless subprime lending.

   Citigroup has now submitted to the FDIC its second response to ICP's comments on Citi's application to shift $2 billion in overseas deposits to its savings bank, Citibank FSB. On the issues surrounding CitiFinancial, their response is that

the Federal Reserve Board required, as a condition of its [EAB] approval, an examination of CitiFinancial, to confirm implementation of the progressive lending initiatives adopted by CitiFinancial in connection with its acquisition of Associates. That examination should not delay these applications, however, as suggested by ICP... The Federal Reserve Board will conduct that examination and take action following that examination as appropriate.

   From this phrasing, in a December 14 letter from Citigroup's Carl Howard to the FDIC, it appears that the Fed has still not completed the examination of CitiFinancial that it announced in mid-2001.

     On December 20, Citigroup announced it is hiring ex-IMF managing director Stanley Fischer. Reuters reported that "Fischer, 58, follows a long line of Washington D.C. insiders who have migrated to Wall Street, and will report to former U.S. Treasury Secretary Robert Rubin in his new post at Citigroup." We'll add to the list: ex-Federal Reserve money laundering specialist Richard Small, and ex-Secretary of Energy Bill Richardson. Citigroup's CEO Sandy Weill gushed, "Stan's keen intellect and unique perspectives will be invaluable as we work with governments and clients around the world. His demonstrated ability to manage complex policy negotiations at the IMF and his highly successful work as a strategic adviser to governments will make him an invaluable resource as Citigroup continues to build its global franchise" We're sure Stan will be "invaluable." He did a great job with Argentina, right? Click here for BBC's account; click here for ICP's analysis of banks, including Citi, and Argentina.

     From the mailbag:

Subj: Bill Richardson and Citigroup
Date: 12/17/01 10:32:15 AM Eastern Standard Time
From: [Name withheld]
To: CitiWatch [at] innercitypress.org

I'm a Citigroup employee, and I'm interested in finding out what influence Bill Richardson, and former Clinton lawyers are having on the Enron situation. Please look into the court cases for me and see if anything interesting pops up.

     In the archived written press, the most recent reference to former Energy Secretary Richardson and Citigroup is this:

"Bill Richardson, former secretary of energy, has been hired by Salomon Smith Barney (SSB) to be a consultant in the global energy and power group. SSB is a subsidiary of Citigroup." Nuclear Waste News, July 26, 2001

    It's a sad day for the concept of an active and investigative press, financial and otherwise. We will continue our research; all leads are welcome. Bill, where are you now? Houston?

Update of December 17, 2001: This week's Citigroup news includes lobbying, settling environmental cases on the cheap -- and dodging bullets post 9/11. In reverse order:

    Last week, the U.S. government indicted Zacarias Moussaoui as the "20th hijacker." As relates to finance, the 31-page indictment names only two financial institutions -- neither is Citigroup. SunTrust Bank in Florida first appears in paragraph 22 of the indictment, in connection with a $9,985 wire transfer from the United Arab Emirates; thereafter, SunTrust is named in paragraphs 24, 25, 26, 52 and 91. Standard Charter's Dubai branch first appears in paragraph 57 (Mustafa Ahmad opening an account, in June 2001); thereafter, StanChart appears in paragraphs 76, 91, 97, 98 and 99.

    Our Citigroup question this week: why was Citi not named in the indictment? For example, the (London) Independent of November 20, 2001, reported that Ramzi Muhammad Abdullah bin al-Shibh, one of the "flatmate" at 54 Marienstrasse in Hamburg (and the prospective hijacker that Moussaoui allegedly replaced), "transferred $2,200 (pounds 1,500) from his account at Citibank in Hamburg to a Florida bank on 15 August," 2001. This would seem to be one of the key wire transfers. And it has been widely reported that other transfers were routed through Citi in New York, as a correspondent bank (which also happens to be the largest single user of the global SWIFT money transfer system). So why was Citibank not named in the indictment?

    Is it just a matter of Citigroup's lobbying strength? Who at the Department of Justice (or elsewhere) decided on the specifics of the indictment -- including which banks to name -- prior to its filing and release? We note, as simply another example of Citigroup's "access," that on December 13 Treasury Secretary Paul O'Neill met with seven "industry representatives," including Citigroup senior vice president (and lobbyist) Roger Levy. Also, Citigroup in 2000 hired the Federal Reserve Board's money laundering "guru," Richard Small. Any reader with more insight or information is encouraged to chime in.

    In environmental news, Citigroup last week reached a sweetheart agreement to pay only one-fifth of the $ 35 million it will take to move radioactive waste out of its Shattuck superfund site, a former radium processing plant in the Overland Park neighborhood in South Denver. The investigator initially assigned to the case by the EPA Ombudsman's office noted that the agreement still doesn't call for contaminated soil or groundwater to be cleaned up, and that, under the agreement, Citigroup will pay only a fraction of the damage it has done to the environment. "This is chump change compared to what it's going to cost to do it right," he said...

Update of December 10, 2001: From the general to the practical. At the beginning of last week, Inner City Press stumbled across a notice for two applications to the FDIC by Citibank FSB. ICP requested copies of both applications, and they arrived at week's end. They're a doozy: in the first, Citibank FSB is seeking to acquire two branches of Citibank International, and the $1.1 billion in currently-uninsured deposits they hold; in the second, Citibank FSB is seeking to acquire $1 billion in (again uninsured) "International Banking Facility" deposits currently held by Citibank, N.A.. Why might this be of interest? Well, Citigroup has already been undermining not only CRA, but also the whole FDIC insurance regime, by shifting Salomon Smith Barney's accounts into Citi's FDIC insured banks, while not paying any more FDIC premiums or concomitantly expanding its CRA programs. Now it proposes to shift $2 billion more into its saving banks -- and again, no projected expansion or improvement in its CRA programs. ICP has submitted comments, in the brief extension granted by the FDIC, on issues ranging from money laundering to Citigroup's 2000 lending record.

    For example, in the New York City Metropolitan Statistical Area ("MSA") in 2000, for conventional home purchase loans, Citibank denied loan applications from African Americans more than five times more frequently than applications from whites. Citibank denied Latinos 3.5 times more frequently than whites. This is much worse than other lenders here: the denial rate disparities for the industry as a whole in 2000 were 2.20 for African Americans, and 1.97 for Latinos. [snip - contact ICP for more recent data]

     Citi is expanding in Kenya, with no scrutiny. As previously reported in this space, it was announced in mid-November that ABN Amro wants to sell its two Kenyan branches to Citigroup. Last week ICP learned that the Federal Reserve Board will not be requiring any application for regulatory approval for the deal. This is a loophole that need to be closed...

Update of December 3, 2001: The banking -- and Citigroup -- story of the week is clearly the implosion of Enron, to which Citigroup has a reported exposure of $800 million. The Wall Street Journal of November 30 notes that Citigroup ""won an investment-banking mandate on the failed Enron-Dynegy Inc. deal only after agreeing to extend fresh loans to the troubled energy trader," and reports that a "Citigroup spokesman declined to comment." Rather, Citigroup continues to set its sights overseas, including continuing to move in on the Anglo-Asian bank Standard Chartered, whose CEO resigned last week, to be replaced by Mervyn Davies, who until 1993 worked for Citibank... In Cairo, Egyptian American Bank (EAB -- now the main EAB, after Citigroup's Long Island, NY acquisition earlier this year) announced that it's in talks to be sold to, you guessed it, Standard Chartered. Citi's global deal making goes on -- the Fed, for example, claims that no public comment will be allowed on Citigroup's proposal to acquire branches in Kenya -- while, in the aftermath of Enron's imposition, it's increasingly clear that the deregulatory emperor has no clothes. Citigroup can (and does, but that's another story) cost taxpayers billions of dollars, and yet it's scarcely regulated....

    The Financial Times reported on November 29 that ""U.S. investigators believe about half the $500,000 that the hijackers spent on the September 11 plot was sent by Mustafa Ahmad, who is today regarded by investigators as bin Laden's finance chief, via Dubai money exchanges through Citibank in New York and on to Florida." Citigroup has not stated whether it filed a Suspicious Activity Report when this money passed through it. The Federal Reserve Board's ex-head of anti-money laundering, Richard Small, is now co-head of the same terrain at Citigroup. Citi was hiring not only expertise, but access... For more coverage of these issues, click here.

Update of November 26, 2001: The Turkish newspaper Finansal Forum last week predicted that Citigroup will buy a majority stake in Turk Ekonomi Bankasi AS, a midsize Turkish bank, as early as December. A bigger rumor has Citigroup looking to acquire Standard Chartered, with branches throughout Asia, Africa and the Middle East. Already, and of increasing interest, Citigroup owns 23 percent of Saudi American Bank, the second- largest Saudi bank, known as Samba...

    Last week the SEC charged Citigroup will selling unregistered securities; Citigroup settled the charges. The SEC charged that in August 1998, Citigroup and State Bank of India raised about $532 million by selling "Resurgent India Bonds" in the United States. Citi sold about $160 million of bonds. "The order finds that the RIBs are securities and that SBI and Citibank violated U.S. securities laws by offering and selling the RIBs when the offering of such securities was not registered with the SEC."

    Also last week, the U.S. Court of Appeals for the Second Circuit dealt a blow to Citigroup's defense of sexual harassment charges at its SSB unit. This is the "Boom Boom Room" case, begun in 1996 after Pamela Martens alleged that crude talk and suggestive behavior took place regularly where she worked at the Garden City branch of what was then Smith Barney. The case grew to class action status; the part of the case ruled on last week concerns Citigroup's imposition of mandatory arbitration on employees (and, as previously reported, customers). Ms. Martens told Newsday (11/22): "Mandatory arbitration allows companies to convene secret corporate tribunals that do not have to follow the law." Last week's ruling found that 900 potential claimants had not been provided with required access to lawyers who could help them decide whether to mediate their cases or to accept the SSB offers, as well as reversing U.S. District Judge Constance Baker Motley's earlier dismissal of Martens' and Judith Mione's cases, once they opted out of SSB's proposed settlement. Martens' will now further oppose Citigroup's use of mandatory arbitration....

Update of November 19, 2001: Citi-Banamex fallout continues. On November 14, Citigroup announced that it will cut 7,800 jobs, mostly in Mexico, to reduce costs. 4,200 jobs would be slashed from Citigroup, and 3,600 would be eliminated from the Banamex work force. This is on top of close 101 Banamex branches. So what was that, about the deal being good for Mexico?

    Meanwhile, Citigroup announced last week it is buying the Kenyan banking operation of ABN Amro: "two branches catering to both local and international clients." In Brazil, Citigroup plans to start up insurance activities at the end of the first quarter of next year, though Citiinsurance do Brasil Vida e Previdencia SA. Citi's request is being "analyzed" by Brazil's insurance sector regulator Susep, said Citigroup's Latin America insurance director Umberto Fabbri. Citiinsurance will start by offering life and personal accident insurance. In a "near future", Fabbri said it will expand into the private pension sector. Great...

    Cutting back to the U.S., Citigroup's subprime lender CitiFinancial is one of the largest campaign contributors to Baltimore mayor Martin O'Malley, who's reportedly drooling to become Maryland's governor. Baltimore is giving CitiFinancial tax breaks and subsidized parking spaces downtown. In August, Baltimore approved a $1 million low-interest loan for CitiFinancial to renovate its 300 St. Paul St. headquarters. In May, CitiFinancial, its president and two political action committees of CitiGroup Inc., the parent company of CitiFinancial, had given a total of $9,000 to O'Malley's campaign fund. CitiGroup spokeswoman Maria Mendler said: "We're a company that has been headquartered in Baltimore for quite a while, and we have the responsibility to participate in the political process. The campaign contributions and contributions to other officials are part of our doing business." Yep...

     And while the Federal Reserve Board has yet to announce any results from its onsite examination of CitiFinancial, it might want to check out Ross, et al., v. Citifinancial Inc., et al., No. CIV.A. 5:01-CV-185BN (S.D. Miss. 10/5/01), before District Judge William H. Barbour Jr..

     In West Virginia, Citigroup has lost a trademark infringement fight it picked with City Holding Co., parent of City National Bank. Citi had sued City Holding in a bid to block the company from using the word "City" to identify its financial products. But U.S. District Judge Robert Sweet ruled that Citi has solicited customers for credit cards and travelers checks since the 1980s, while City National has used the name since 1957....

Update of November 12, 2001:  This week -- focus on Citigroup in Asia. In a November 6 presentation to stock analysts, Citigroup talked-up its consumer finance (including subprime lending) units. The head of Citifinancial International, Roy Guthrie, said that Citi's high-rate lending business in Japan is booming. Buying Associates has made Citi the fourth largest consumer finance lender in Japan, behind only Takefuji, Acom, and Promise. Citi CEO Sandy Weill was present, but let those in charge is this (dirty) business take in the lead in the presentation.

    Meanwhile, the Taiwanese conglomerate Fubon, of which Citigroup owns 15 percent, is on the hunt for acquisition since Taiwan's financial deregulation law went into effect on November 1. High-cost lending in Taiwan? Why not? In South Korea, Citi has 12 branches -- nine in Seoul, two in Pusan and one in Pundang... In a speech in Vietnam earlier this month, John Beeman, "country corporate officer of Citibank in Vietnam," called for "improved competitiveness" and "eliminating the structural issues of banking system and state-owned enterprises." Yes, Citigroup has a foreign policy...

     And a labor policy, too: Citigroup's investment bank, SSB, is planning to lay-off 300 people, as early as this week.

     For those interested in Citigroup's effect on the environment -- the growing interest was evident in actions at Citi branches around the U.S. on Nov. 7 -- note that Citigroup's Ilene Fiszel Bieler will be speaking (on the topic of "Financial Market Views of Carbon Risk") at a conference held by Redefining Progress, at 3:30 p.m. on Thursday, Nov. 15, 2168 Rayburn House Office Building in D.C...

Update of November 5, 2001: ICP has received more detailed information regarding Citigroup's lobbying against post-S11 money laundering laws. Faced with legislation which would have barred it from doing business with offshore shell banks, Citigroup kicked into high gear. Publicly, the process resulted in a compromise in which only shell banks not affiliated with a "real," onshore depository bank would be targeted. But behind the scenes, Citi tried to go further and expand this exemption to include any shell bank with a "financial institution" as its parent. Any financial institution -- i.e., including brokerages with few money laundering controls, etc.. The wording change -- the provenance of which no one sees to know or want to admit -- was caught at the last minute by Congressional staffers. Oh, well.

   Meanwhile, through the American Financial Services Association, Citigroup has opposed anti-predatory lending ordinances from Oakland to Georgia to Connecticut. In Georgia, Superior Court Judge Edward Wheeler last week threw out the DeKalb County ordinance, in response to AFSA's lawsuit. AFSA had relied on the changes the ordinance would require at Citigroup's CitiFinancial (and AIG's American General Finance) -- the largest U.S. bank and insurance company, respectively, by market capitalization. Money talks, and consumers walk. Democracy and local control, you ask? They're in a wheelchair.

Update of October 29, 2001: On October 24, Citigroup announced that it will close 90 bank branches in Mexico, and lay off over two thousand employees, following its acquisition of Banamex. In Kansas City, Citigroup-owned Delco Remy International Inc announced it will next month close Engine Master Inc., an automotive engine rebuilder, and lay off 74 employees.

    In environmentally-related news, Enron has asked Citigroup Inc. to arrange a $750-million loan. Citigroup's Anne Costin, "deputy head of global project and structured trade finance, brags to the oil industry press that in the past year Citi has closed over $11 billion of project financing for the U.S. power market, including for two large power plants sponsored by Teco Power Services and Panda Energy International.

     Citigroup's role in the pre-September 11 transfer of hijackers funds continues to come into focus, even as Citigroup dodged a bullet in the money laundering legislation signed by U.S. president Bush on October 26. The Washington Post of October 25 reports that a $70,000 wire transfer from the United Arab Emirates to hijacker Atta passed through Citibank in New York. Contacted to respond to the Los Angeles Times' report that Atta had an account at Citibank in the UAE, Citigroup's all-purpose spokeswoman Leah Johnson said: "We are committed to cooperating in any way possible with the government's far- reaching investigation and the ongoing battle against terrorism. However, we do not comment publicly on what if any information is being shared with law enforcement.''

      As reported in previous weeks (below and here), Citigroup lobbied extensively against the anti-money laundering bill. To the end, Citigroup conducted business with shell banks. The Sun-Sentinel of October 27 provides Citigroup's reaction to the new legislation, reporting that Citigroup "has said it permits business with a shell bank if its parent is a financial institution, not necessarily a bank. But that policy, as well as its liberal use of correspondent accounts, might have to end under the new anti-money laundering law. Citibank officials reiterated Friday their position that it has limited its contacts to 'reputable and financially robust institutions.'"   Such as, until quite recently, the Sudan-based Al-Shamal Islamic Bank...(Click here for more on this).

     Also of benefit to Citigroup was a little-noticed change in the final bill, which removed a provision that made fraud against a foreign government a predicate offense to money laundering. So business with the Sani Abacha's and Raul Salinas' of the world can continue apace...

Update of October 22, 2001: We begin with -- what else? -- the September 11 connection(s). The Los Angeles Times of October 20 quoted the head of the central bank of the United Arab Emirates that S11 hijacker Mohamed Atta maintained an account at a Citibank branch in Dubai. Sultan bin Nasser al Suweidi characterized Atta's Citibank account as "busier" than normal, with frequent transfers of $10,000 to $15,000. 

     U.S. News & World Report of October 22 reports that "according to congressional staffers, lobbyists for giant Citigroup had urged lawmakers to make an exception for shell banks affiliated with financial services companies... Citigroup has taken heat... for opening a $7.7 million account for a Cayman Islands shell bank whose assets were eventually seized in an illegal-drug investigation."

      As before S11, so after: Citigroup's high-interest rate consumer finance lending is more important to it that it's normally-priced retail bank network. In the third quarter of 2001, "profit at Citibanking North America, the U.S. branch bank, rose 25% to $151 million. Profit at CitiFinancial, the division that lends to borrowers with poor credit histories and includes Associates First Capital Corp. of Dallas, a large subprime lender that Citigroup acquired in November, rose 45% to $308 million." WSJ 10/18.

     To protect CitiFinancial's profits, Citigroup lobbies extensively against local anti-predatory lending laws. The Cleveland Plain Dealer of October 19 reports on the "fast tracking of an Ohio bill that would take away local government's ability to make consumer-lending laws... The bill was written with the help of the Ohio Consumer Finance Association, which represents so-called subprime lenders such as Household International, CitiFinancial and Wells Fargo Corp."

     Of course, Citigroup's lobbying power is global, too. On October 15, regulators in India permitted Associates India Holding Company Pvt Ltda to retain 100% holding in its downstream subsidiary, Associates India Financial Services Pvt Ltd -- the regulators waived the otherwise-applicable requirement of divesting 25 per cent equity through a public offering. Even before buying Associates, Citigroup's presence in India included Citicorp Finance India Ltd, Citicorp Maruti Finance Ltd, a 74:26 joint venture with Maruti Ltd, and Citi Financial Retail Services India Ltd, a 74:26 joint venture with SAK Industries...

     Meanwhile, in Maryland since September 11, consumers have filed a class action suit charging that Citigroup disseminated their personal financial information, invaded their privacy and impaired their ability to obtain credit in violation of the Fair Credit Reporting Act and Maryland law...

     But there'll be more: during the October 17 earnings conference call with reporters, Sandy Weill said that Citi's deal-making come in "extremely good times" and in "extremely bad times," and this "would qualify as one of those extreme times." 

Update of October 15, 2001: Along with its lobbying against anti-money laundering proposals in Congress (see Washington Post of Oct. 11, and see below), Citigroup is already speculating that the U.S.'s foreign policy objectives will make IMF bailouts of countries around Afghanistan more likely. Desmond Lachman, director of emerging-markets economic research at Salomon Smith Barney, gushes: "The money will be a lot more forthcoming, especially to front-line states, especially Turkey but also Indonesia and Pakistan." NYT 10/12. Which means: speculate, baby, you'll get bailed out...

   In Russia, Citibank T/O on October 8 announced a new credit facility with Rostar, wholly-owned subsidiary of Russian Aluminum...  In the U.K., Citibank has been pitching its "My Accounts" feature, which required customers to enter their personal identification numbers and passwords for all their accounts, to aggregate them. As noted by the London press, Citibank's U.K. website named "Halifax and Abbey National among the financial institutions whose accounts can be aggregated. But the two said yesterday that they neither endorsed the service nor wished to participate. Ambrose McGinn, e-commerce director at Abbey National, said it would urge its one million online customers 'in the strongest possible terms' not to sign up to My Accounts. 'If you give away Pins and passwords it will invalidate the terms and conditions of the accounts and leaves our customers wide open to potential malpractice,' he added. Halifax, which has 630,000 online customers, said it had asked for its name to be removed from the Citibank site. 'The basic principle is that you should not give your personal details to a third party. It is like giving the keys of your house away to someone you have never met.'" Question: if Citigroup is willing to use other banks' names without their consent, how much protection would Citigroup give to the personal information of an individual customer?

From the mail bag:

Subj: AWFUL PEOPLE.........
Date: 10/7/01 7:17:58 PM Eastern Daylight Time
From: [BETTY JONES and ALMA YOUNG SALAS]
To: CitiWatch [at] innercitypress.org

    MY MOTHER-IN-LAW PURCHASED SOME SIDING FOR HER HOUSE BACK IN 1997. AND RECEIVED A CALL ON THE PHONE ABOUT PURCHASING THIS SIDING. MY MOTHER-IN-LAW WAS IN HER LATE 70'S AT THE TIME OF THE PURCHASE. THE ASSOCIATES THAT SUPPOSEDLY HAS MY MOTHER-IN-LAW'S CONTRACT HAS CHARGED HER $16,000.00 FOR THIS SIDING AND THEY ARE SAYING SHE HAD NO INSURANCE. BUT BEFORE MY MOTHER-IN-LAW BECAME DECEASED IN1999 SHE WAS UNDER THE UNDERSTANDING THAT HER INSURANCE THROUGH THE ASSOCIATES WOULD PAY OFF HER DEBT ON THE SIDING AND HER HOME IMPROVMENT LOAN. BUT, IT DIDN'T.

     THE ASSOCIATES' DENA STAGILONE SAYS IF I DO NOT PAY THIS THEY WILL FORECLOSE ON THIS HOME. BUT, KEEP IN MIND I WAS THE DAUGHTER-IN-LAW AND MS. YOUNG'S SON, WHO I WAS MARRIED TO, PASSED ON TOO. AND DENA STAGILONE SAYS $9,800.00 IS STILL OWED ON THIS ACCOUNT.

     I DO NOT HAVE A CONTRACT TO PROVE THEY EVEN DID THIS SIDING JOB. THEY WILL NOT PRESENT ME ONE OR EVEN SEND ME A COPY OF MS. YOUNG'S -- SHE IS THE ONLY PERSON WHO SIGNED IT. BUT I HAVE PAID OVER $2000.00 ON THIS AND I DO NOT FEEL THAT I'M RESPONSIBLE. THEY KEEP SENDING MAIL IN MS, YOUNG'S NAME AND I HAVE NOTIFIED THEM OF HER DEATH AND THAT A DECEASED PERSON CANNOT COLLECT MAIL. AND I DON'T WANT IT IN MY NAME EITHER. EVERYTIME I CALL OR MY SISTER CALLS THEM EACH AND EVERY PERSON CONNECTS US TO DENA STAGILONE. THEY SAY SHE CONTROLS THIS CONTRACT. BUT DENA STAGILONE HAS SENT ADDRESSES TO WHERE TO MAIL PAYMENTS TO OUT OF TEXAS LOCATIONS. LIKE SIOUX FALLS, UTAH, DES MOINES, IOWA -- ABOUT 5 DIFFERENT ADDRESSES...

    FIRST, THE ASSOCIATES NATIONAL BANK IN HOUSTON , TEXAS IS LISTING THEIR BUSINESS UNDER ATTORNEYS, PLUS THEY ARE USING THAT THEY ARE A DELAWARE CORP. AND THEY ARE GOING BY ASSOCIATES CREDIT CARD SERVICES, PLUS THEY SAY THEY ARE A PRIVATE LABEL CO. FOR TEXACO AND COLLECTING ON JUDGMENTS, BUT DOESN'T SUPPLY PROOF OR DOCUMENTS TO THE ONES THEY GO AFTER. FOR ONE MY SISTER. THE POSTAL SERVICE OF HOUSTON SAYS THEY ARE NOT ASSOCIATES NATIONAL BANK. BUT THEY FILE JUDGMENTS OUT OF THAT COMPANY NAME. THEY ARE VERY RUDE PEOPLE. AND WON'T SEND ANY IMFORMATION THAT YOU REQUEST FOR. THEIR ADDRESS IS 330 BARKER CYPRESS RD, HOUSTON, TEXAS 77094. SO IS ASSOCIATES CREDIT CARD SERVICES. SO IS THEIR TEXACO. THEY ALL HAVE THE SAME ADDRESS. AND THEY WORK THROUGH A NATIONWIDE CREDIT INC. OUT OF PHOENIX, AZ AND AN ATTORNEY FIRM: MYERS & PORTER LLP, DEBT COLLECTION ATTORNEYS OUT OF BEDFORD, TEXAS...  I THREATENED TO TURNED THEM IN AND THEY SAY WE HAD NOTHING TO DO WITH IT...

                        -- ALMA YOUNG SALAS AND BETTY JONES

      And the beat goes on...

Brief (but necessary) update of October 12, 2001:  The Washington Post of 10/11 reported that "Citigroup executive Rick Small has proposed language that would soften a provision barring U.S. banks from doing business with offshore shell banks that have no physical office and no affiliation with an established bank. Until recently, Small was one of the Federal Reserve Board's top money-laundering experts. He didn't return calls." 

     So: Citigroup's public spin was that it was putting its money-laundering past behind it, by hiring the Fed's expert. Now Citigroup uses this hired gun to lobby against anti-money laundering proposals....

Update of October 8, 2001:  Nothing slows Citigroup down. Widely documented to have been at the forefront of money laundering and private banking shenanigans, Citigroup now wheels out ex-Treasury Secretary Robert Rubin, as statesman-in-residence, briefing the U.S. Senate and penning an op-ed for London's Financial Times (10/1), on the importance of anti-money laundering laws. Meanwhile: business, business. Hal Ritch, co-head of global M&A at Citigroup's SSB, said his "clients are going ahead with their M&A projects... 'My clients are more steely than the market place.'"

     But in Seoul on October 4, Korea Exchange Bank announced that Citigroup had withdrawn from talks to buy its credit card unit because of the September 11 attacks. "Citibank said fallout of the September 11 aerial attacks on the U.S. led the American bank to stop new investment," said Hong Young-hwan, a KEB spokesman. Reuters, 10/4/01. Citigroup also sold off, to Prudential, CitiCapital Relocation, which it described as part of its commercial finance arm, CitiCapital, based in Irving, Texas. That is to say, another piece of Associates First Capital Corp. is gone...

     Relatedly (to Associates, that is), the American Banker of Oct. 5, analyzing Citigroup's dropping of single premium credit insurance, claims that Citi's move was prompted by Sen. Chuck Schumer, and provides no explanation at all for AIG's move. But see numerous press accounts detailed the nationwide (continuing) advocacy around Citigroup. Citi spins, and the industry press (often) mystifies. And the beat goes on...

     Litigation against Citigroup by its (former) employees continues. In August, Los Angeles Superior Court Judge Aurelio Munoz granted class-action status to a lawsuit filed against Citigroup by former employees. Judge Munoz's certification of the California case means the lawyers for the plaintiff have the right to represent 535 former Citigroup employees in California. At issue are Citigroup's conflicting policies of offering employees, as compensation, the ability to buy company stock at a discount, but then refusing to pay-out to an employee who leaves before serving for two years. The ex-Citi employees call that policy an illegal confiscation of wages. Another similar class action against Citigroup being heard by judge Edith Payne at Superior Court in Essex County, N.J.. In Boston, U.S. District Court Judge Robert Keeton is overseeing a consolidated action that incorporates class-action lawsuits filed against Citigroup in federal courts in Connecticut, Massachusetts, Mississippi and Florida. Citigroup is opposing a motion to grant nationwide status to CAP lawsuits. Does it sound like Citigroup's ongoing fight-off of predatory lending litigation? Yes. And we'll have more on that (Citigroup's predatory lending) in coming weeks. Until next time, for or with more information, contact us.

Update of October 1, 2001: ICP continues to focus on September 11 aftermath, Citi-related and otherwise. Click here to view ICP's Second Special Report on banking connections to the plane-bombings, and terrorism more generally. Among the Citi connections:

     On September 26, the U.S. Senate Banking Committee held a hearing on "Money Laundering and the Funding of Terrorist Activities." Detailed testimony named Khartoum's Al-Shamal Islamic Bank as having been founded by Osama bin Laden, and still owned by him in 2000. Among the "correspondents" of this bank is... Citigroup.

     Immediately the spinning began. Citigroup spokeswoman Christina Pretto said the Al Shamal account has been "dormant for the last several months," and now had only "a small balance" in it.

     But the U.S. State Department had publicly issued a "Fact Sheet on Bin Laden" as early as August 14, 1996, which stated that "Bin Ladin and wealthy NIF members capitalized Al-Shamal Islamic Bank in Khartoum. Bin Ladin invested $50 million in the bank."

    Citigroup, by its own admission, continued to do business with Shamal Bank until "several months" ago, in 2001. Given Citigroup's business with Raul Salinas, the family of Nigerian ex-dictator Sani Abacha, the daughters of Indonesia's Suharto, and former Venezuelan president Jamie Lusinchi, this may not be surprising. An aside: at that Senate hearing, the head of Citibank's private bank, Shaukat Aziz, defended Citi. Mr. Aziz is now... the finance minister for Pakistan's military ruler. Also, The Times of London of Sept. 25, 2001 reported that "[t]he Bank of England list includes Ariana Afghan Airlines, the country's national carrier, and its bank accounts. One of the company's accounts is held at the New Delhi branch of Citibank, the US financial giant."

     And the beat goes on: last week Citigroup Private Bank's chief strategist Clark Winter blabbed to the Financial Times: "Clearly, clients should eliminate obvious risks, such as cross-currency borrowing and susceptibility to margin calls, because they will be called. They should also be ready for more pressure on the dollar as investors switch to the Swiss franc and more trouble for the airlines and the leisure industry... Also, we have probably seen the pop in defense stocks. But this is the time to put money into great names - companies with great brands, top quality products, strong balance sheets and global franchises." Like... Citigroup?

     A follow-up on Citigroup's November 30, 2000 acquisition of Associates First Capital Corp.: last week, the Securities and Exchange Commission settled charges against Citigroupers for insider-trading on the deal. David Kenneth Tomney, vice president in Citibank's corporate tax group, was accused of making $11,600 in illegal profits by purchasing Associates stock one day before Citigroup's announcement of the proposed acquisition in September 2000. Tomney learned of the acquisition at a company meeting, the S.E.C. said. He agreed to pay $23,600 to settle the charges.

     The S.E.C. also accused three Canadians of trading ahead of the Citigroup-Associates merger using information they obtained through a former Salomon Smith Barney (Citigroup) analyst, Michael Andrew Petrescu-Comnene. The SEC filed a complaint against Mr. Petrescu-Comnene in October 2000. The former analyst settled the charges in May without admitting wrongdoing and was barred from the industry. Related criminal charges against him are pending...

   Finally, the Citi / predatory lending lobbying watch: on September 28, DeKalb County, Georgia, which enacted an anti-predatory lending ordinance which was sued by the American Financial Services Association, filed a motion to dismiss AFSA's suit, on the grounds that it has no standing to sue over the ordinance because the group does not pay taxes in the county or do business there. AFSA's lawyer Tony Powers quickly cited to two AFSA members with offices in DeKalb County --- Citigroup's CitiFinancial and AIG's American General Finance. So in essence, it's these two subprimers (owned by the largest bank and insurer, respectively) that are opposing anti-predatory lending safeguards. Ah, Citi...

Update of September 24, 2001: In the wake of the September 11 plane-bombing of the World Trade Center, published reports detailed the response of Travelers Insurance, a subsidiary of Citigroup. Travelers customer Jeff Shapiro, who both lives and works near the Trade Center, was quoted that Travelers "has been so unsupportive. They should be saying, 'Don't worry. We're going to help you,' versus, 'Hey, you're limited to just two weeks' coverage in this situation.' It just makes me feel worse."

    Less anecdotally, Inner City / Finance Watch has prepared a report on bank links to Al Qaeda and other state- and non-state terrorist groups. As the world's focus shifts to Pakistan (and its neighbor Afghanistan), it's worth remembering the banking business Citigroup has done with recent rulers of Pakistan. The Business Recorder of March 22, 2001, reported that "Syed Muhammad Zafar, the counsel for the [Pakistani] National Accountability Bureau told the Supreme Court here on Thursday that a US Senate's Sub-Committee on Private Banking and Money Laundering had referred to Asif Ali Zardari's financial and legal connections in Switzerland and also listed three accounts in Citibank there of which he was a beneficiary. The former Law Minister told a Special Bench of seven judges hearing appeals of Benazir Bhutto and Zardari against their convictions by an Ehtesab Bench that Zardari had established contacts with the Citibank in Switzerland in 1984 through a private banker, Kamran Amouzgar, and a lawyer who had represented the Bhutto family in Europe for over 20 years, and was also its close friend. He identified the Swiss lawyer as Jens Schlegelmilche, who was mentioned in several documents and referred to by some witnesses during the trial of Benazir Bhutto and Asif Ali Zardari before the Ehtesab Bench of the Lahore High Court."

    Note: Asif Ali Zardari also raised money selling looted Afghani heritage items on the black market. Citigroup other private banking clients have included Nigeria's ex-dictator Sani Abacha, Bongo of Gabon, Stroessner of Paraguay, and Mexico's Raul Salinas. A November 9, 1999 Senate staff report, "Private Banking and Money Laundering: A Case Study of Opportunities and Vulnerabilities," details how Raul Salinas employed Citibank's private banking department to launder over $ 240 million into Swiss accounts. Regarding September 11, Citigroup proffered one of its longest media-responses to date, stating that "[w]e provide typical banking services to the Saudi Binladin Group which has denounced and completely disowned Osama bin Laden. We can't comment on activity with respect to specific accounts. However we are monitoring the situation closely. In addition, we are committed to cooperating in any way possible with the government's far-reaching investigation and the on going battle against terrorism."

     Citigroup in 2001 hired the Fed's money laundering expert Richard A. Small -- click here to read Mr. Small's 1999 Senate testimony, blithely concluding that "[t]he banking system has a significant interest in protecting itself from being used by criminal elements. Individual banking organizations have committed substantial resources and achieved noticeable success in creating operational environments that are designed to protect their institutions from unknowingly doing business with unsavory customers...". The issue with Citigroup: Citi's business with unsavory customers does not appear to be "unknowing"....

    And, in the chaos of last week, Citigroup continued to expand. Citigroup's new Mexican subprime lending unit Grupo Financiero Associates bought the 51% of Mexican finance company Credito Familiar that Citigroup didn't already own. Dow Jones (9/17) euphemistically called Credito Familiar a "low-income lender."

    In Japan, Citigroup announced an insurance (or variable annuity) joint venture with Mitsui Marine & Fire Insurance Co. and Sumitomo Marine & Fire Insurance Co.. Citigroup is already the biggest shareholder in Nikko Securities Co., Japan's third-biggest brokerage firm, with a 20% stake. It also has 49% of a joint-venture investment bank with Nikko, called Nikko Salomon Smith Barney Ltd. And, of course, Citigroup owns Associates First Capital Corp., which has a large (subprime) consumer finance operation in Japan...

Update of September 17, 2001: Following the September 11 plane-bombing of the World Trade Center and the U.S. Pentagon, it is likely (and to some degree understandable) that issues of economic justice will take a back seat for the foreseeable future. Most countries in the world have suffered the bombing of cities and civilian casualties -- but this has, gratefully, been rare in the United States. President Bush has said that responding to the attacks will become the focus of his administration. And today's reopening of the stock markets (and of professional baseball, et al.) exemplify the efforts that will be made to show that life in the U.S. goes on. This is understandable, appropriate, laudable.

Economic justice advocates have shown, and will undoubtedly show, restraint -- that they take the events of September 11 seriously. We suggest that financial institutions do the same. In Inner City Press' daily coverage of the plane-bombing's aftermath from September 12 - 14 (to view, click here and scroll down), we noted several self-serving announcements by financial institutions. One New York-based bank, HSBC, told a reporter that it would be waiving fees -- then, the next day, called the reporter to explain that the fee-waived would be extremely limited, and to request that a clarification be published. Citigroup issued a statement that "For the most part, it is business as usual for many of our businesses in North America and around the world." Business as usual? Among post-September 11 tasks is to inquire into how attacks like these are financed, how the money is moved. Banks with notably lax money laundering policies -- see below -- will be examined particularly closely. Sometimes, it's been a matter of direct solicitation: the London Observer of December 13, 1998, reported the visit to Afghanistan of Mark Warner, a director with Barclays Private Bank Ltd., to drum up business... In testimony in federal court in Manhattan in February 2001, Osama bin Laden's paymaster Jamal Ahmed Al-Fadl testified that al-Qaeda had various bank accounts, including with Barclays Bank. While Barclays now tells reporters that it is "fully aware of [its] legal obligations," the reports become more specific: the account was at the Barclays branch in Notting Hill, west on London... See also, as to Citigroup, the Minority Staff of the U.S. Senate Permanent Subcommittee on Investigations, Report on Correspondent Banking: A Gateway to Money Laundering, February 2001, and the documentary evidence for Senate Hearing 106-428.

    Of some relevance, if only by analogy, in Europe the economic justice network Attac issued a press release condemning the plane- bombings "in the firmest possible terms, particularly because terrorism has always been used to suppress and suspend democratic freedoms." Later in the week, ATTAC confirmed that it would not cancel its next planned protest, stating that "we understand the shock in the U.S.... But, in Europe and the rest of the world, we are not in a state of shock. Life goes on -- and we see no reason to change our analysis or our actions."

   Regarding the issues raised in the Reports below on this page, is there a reason to change analysis or actions? Fundamentally, no. But there is a wider picture, there is work to be done, and assistance to be rendered...

Update of September 10, 2001: Last week brought nothing positive for Citigroup's image. The week began with the shut-down of Citigroup's 2000 automatic teller machines; the week ended with the North Carolina Attorney General announcing a $20 million fine, to recompense borrowers would were gouged with credit insurance on subprime loans.

   Last week, in reviewing Citigroup's August 30 dissemination of a purportedly internal memo on reforms to its subprime lending -- largely the de-certification of certain mortgage brokers and correspondents -- we mused that Citigroup was releasing this memo in an attempt to "spin" a more negative forthcoming story. Well, on September 6 the other shoe dropped. The North Carolina Attorney General announced that Citigroup will pay up to $20 million to reimburse customers gouged with single premium credit insurance. Various journalists informed ICP that Citigroup's spokeswoman Leah Johnson refused to answer their questions about this North Carolina fine, an approach decidedly different from Citigroup's willingness to brag out its internal memo the week previous.

    North Carolina is only one of over 40 states in which consumers were subjected to these practices; there is little rationale for similar refunds not being made or ordered in other states. Also, single premium credit insurance is only one of the predatory practices at CitiFinancial; many of the practices (including but not limited to absurdly high "loan discount" fees) continue today at CitiFinancial. So this is a developing story...

   The American Banker of September 10 quotes Citigroup SVP Pam Flaherty: "Are we perfect? No, but we're on track to keep all our commitments by the end of the year, and we continue to learn." As reported on ICP's CitiWatch, Ms. Flaherty asked that complaints about practices at CitiFinancial branches be transmitted to her -- but when she was asked about lifelong gag orders CitiFinancial has sought from ex-employees, prohibiting them from providing any derogatory information about any Citigroup employee or practice, she responded that these gag orders are "customary," and then stopped responding. So our question remains, about what exactly it is, that Citigroup is learning...

Update of September 4, 2001: Last week Citigroup continued it global wheeling-and-dealing, while trying to spin the U.S. press that it is cleaning up its subprime lending business. Citigroup raised its stake in Japan's Nikko Trust and Banking Corp from 20% to 50%, and sold Associates' vehicle leasing business in Canada to GE Capital. The Seoul press on September 4 reports that Korea Exchange Bank has agreed to sell a controlling stake in its credit card operations to Citibank for $516.4 million.

      In New York on August 30, Citigroup sent 18 Citi-selected journalists a supposedly "internal" Citigroup memo announcing the progress of reforms at Associates First Capital Corp.. This is Citigroup's fourth round of spin concerning its subprime lending practices. In this round, the sound byte that Citi chose to highlight is that it is "suspending relationships with 3,600 brokers and 300 correspondents."   But more than two-thirds of these "suspensions" are of brokers who did not return to Citigroup its purported "Code of Conduct." Why they didn't return it is unknown. It can only dubiously be attributed to Citigroup's self-proclaimed leadership status in the subprime lending industry.

     The reality "on the ground" is quite different than the portrayal in the Citigroup memo. As reported below, in July ICP obtained a sworn affidavit from a person who had worked at CitiFinancial until May 24, 2001, stating that up until the time he left, documents were being forged, RESPA disclosures were being back-dated, and the true cost of loans were not being disclosed. ICP has obtained documentation of a CitiFinancial loan made in mid-June 2001: to finance $73,000, the borrower pays Citi $92,000 in finance charges.

      The memo claims that CitiFinancial has an "Ethics Hotline" for employees. But the sworn statement obtained by ICP in July 2001 recounts complaints to this Ethics Hotline that were ignored by Citigroup. The complainant was told that Citigroup would not begin an investigation based on the word of an employee. And once ICP filed the affidavit with the Federal Reserve Board, Citigroup sent lawyers from the Skadden Arps law firm down to South Carolina, to threaten to sue whistle-blowers under lifelong non-disparagement agreements it had strong-armed them into signing upon leaving the company. In this light, it's hard to view Citigroup's August 30 memo as anything more than spin...

      Notably, when the Federal Trade Commission filed its predatory lending lawsuit against Citigroup in March 2001, the American Banker newspaper (3/8/01) ran the following quote: "'My impression is that Citigroup has been working overtime trying to ensure that all of their business units, including Associates, operate in an appropriate manner,' said Wright Andrews, Washington counsel for the National Home Equity Mortgage Association. 'The FTC's action here may undercut Citi's good-faith efforts.'"

     Reporting on Citigroup's memo last week, the American Banker ran this quote: "Wright Andrews, the chief lobbyist for the National Home Equity Mortgage Association said, 'This announcement certainly shows that Citigroup is making a monumental effort to improve the practices of Associates and to integrate it into Citi’s operations. Time will tell what additional steps may have to be taken, but they’ve certainly done an awful lot.'"

     So let's get this straight: in March 2001, Citigroup had already been "working overtime" to improve its lending practices, and supposedly the FTC's lawsuit might "undercut Citigroup's good-faith efforts." In late August 2001, Citigroup's three spin-round of the year supposedly "shows that Citigroup is making a monumental effort to improve the practices... they’ve certainly done an awful lot." Apparently, even in this subprime industry spokesman's view, the FTC lawsuit did not "undercut" Citigroup's efforts. We're left wondering what the relation is between Citigroup's sending its supposedly internal memo to journalists last week, and the Federal Reserve's announced on-site examination of CitiFinancial, and the upcoming ruling (on Citigroup's motion to dismiss) in the FTC v. Citigroup case... 

Update of August 27, 2001: From IMF lending (with all the attendant "conditionalities," including cuts in social services) to subprime mortgage lending, Citi is there. The Wall Street Journal of August 24 reports that U.S. Treasury Secretary O'Neill "and Citigroup Vice Chairman Bill Rhodes talked repeatedly the night the International Monetary Fund's $8 billion compromise aid plan [for Argentina] was announced." The American Banker of August 22 quotes Damian Kozlowski, Citigroup Private Bank's new CEO, that this unit "for high-net worth individuals" will be expanding its office in... Buenos Aires.

    South Carolina CitiFinancial interim update: sources tell Inner City Press that Tim Delapaz, the CitiFinancial supervisor whose "resignation" Citigroup accepted, after investigating Steve Toomey's July 8, 2001 affidavit (reported here) got... a $29,000 severance check, and was asked to sign a (modified) non-disparagement agreement. A connection to the above? Mr. Delapaz (and his supervisor, Steve Diubaldo) used to work at HomeGold (the subprime lender referenced in the foreclosure sale notice above, as selling loans to CitiFinancial).

Update of August 20, 2001: On August 14, Citigroup announced that it will be laying off 3,500 employees. But in Baltimore, Citigroup's subprime lending unit, CitiFinancial, said it will be adding 500 jobs (Baltimore Sun, 8/15). Why? Well, Citigroup loves subprime: it's a profit-engine, and Citigroup believes it has enough political sway, bought with campaign contributions and otherwise, that recent calls for a crack-down on predatory lending will not force it to change its practices.

    Citi certain has such sway with the Federal Reserve Board. The most recent example is the slapdash way in which the Fed, in an August 17 letter denying ICP's request for reconsideration of the Fed's Citi-Banamex approval, addresses the sworn allegations of predatory practices at CitiFinancial, and the gag order issue which we've covered here for the past five weeks.

    The Fed's denial comes in the form of a seven-page letter from the Board's Deputy Secretary Robert deV Frierson. Mr. Frierson writes that:

The members of the Board have carefully considered your request... You assert that your request raises several matters that were not presented to the Board during the comment period. These matters include the following:

--You claim that, since the Citigroup/Banacci Order was issued, various media sources have reported that (i) Citigroup has partially corroborated certain consumer-compliance-related allegations made by Vincent Toomey, a former loan officer of Citigroup's subprime lending subsidiary, CitiFinancial Credit Company ("CitiFinancial"); and (ii) Citigroup's outside counsel has met with some present and former CitiFinancial employees regarding nondisparagement clauses in agreements between CitiFinancial and the employees to prevent disclosure of adverse information about CitiFinancial. [FRB footnote: You assert that the Board should have required Citigroup to discuss on the record of the proposal the substance of the allegations by Mr. Toomey and its use of nondisparagement clauses and that the Citigroup/Banacci Order should have included a more detailed discussion of these two matters]. [ICP footnote -- it's STEVEN Toomey, not "Vincent" Toomey, as the affidavit ICP submitted clearly reflects. So much for "careful consideration"...].

--You believe that Citigroup's July 12, 2001, amendment to the structure of its proposed acquisition of Banacci should have been subject to the notice and comment provisions of the Bank Holding Company Act ("BHC Act").

--You argue that the Board should not have acted on this proposal until it had conducted the examination of CitiFinancial's subprime lending activities that was announced in the Board's approval of Citigroup's acquisition of European American Bank ("EAB"). You also criticize the Board's decision to consider the case before the initial 60-day processing period expired.

--You claim that, since the close of the comment period for this proposal, ICP has received material indicating that Board or Federal Reserve System ("System") staff did not comply fully with the Board's ex parte policy during the processing of Citigroup's proposal.

With regard to the first matter, the Board carefully considered the substance of Mr. Toomey's allegations before it acted on Citigroup's proposal. [FRB footnote: ICP made Mr. Toomey's statement a part of the record on July 9, 2001. Mr. Toomey's statement was considered in the convenience and needs analysis in the Citigroup/Banacci Order. See Citigroup/Banacci Order, footnote 45]. [ICP footnote: the only reference therein is to "concerns about...matters raised in affidavits or statements by former or current employees of these subsidiaries," then a reference to "the affidavit of a former CitiFinancial employee filed in the FTC litigation." Apparently Mr. Frierson is saying that the use of the plural ("affidavits") and then the singular ("affidavit") means that the second affidavit, Mr. Toomey's, was "carefully considered"...].

     Mr. Frierson's letter goes on to state that the Fed's "examination will include an interview of Mr. Toomey if he is available." Great -- more than six weeks after the affidavit was submitted, and after Citigroup has conducted interviews and more... Mr. Frierson continues:

You also request reconsideration in light of press reports that Citigroup's outside counsel recently met with some present and former CitiFinancial employees to discuss adherence by the employees to the nondisparagement clauses in their agreements. According to these press reports, the nondisparagement clauses prohibit employees from making derogatory statements about CitiFinancial. Citigroup reportedly had denied allegations made in press articles and by ICP that the purpose of the meetings between its outside counsel and the present and former CitiFinancial employees was to intimidate or frighten the employees into silence, noting that the nondisparagement clauses are standard industry practice and that the clauses do not prevent employees from reporting concerns about allegedly unethical or illegal activities. The impending examination of CitiFinancial discussed above will include a review of these alleged contractual agreements.

    First, the lifelong "nondisparagement clauses" have no exemption for reporting concerns of unethical or illegal activities. The agreement simply provide that they extends as far as permitted by law -- meaning, presumably, that if an individual was subpoenaed to provide evidence, it would not violate the agreement. But a person would and could not be subpoenaed until they voluntarily "reported" their concern -- which would violate the terms of CitiFinancial's gag orders. Second, the gag orders that ICP quoted to the Fed are by no means "standard industry practice," as ICP has been informed by others in the subprime lending industry. The Fed could easily have asked: did ex-Citigroup employees John Reed or Bob Lipp sign anything like this? We doubt it... Third, the time for the Fed to have "review[ed] these alleged contractual agreements" was before giving Citigroup an approval to acquire the second-largest bank in Mexico, and to expand CitiFinancial there. Given the Fed's past and recent practice, it is difficult to have much confidence in this "impending examination" -- adverse findings would remain confidential, any positive findings would be trumpeted by the Fed in future Citigroup approval orders.

    The largest bank in the United States (and now, in the world) is acquiring one problematic business after another. The Fed rubberstamps the acquisitions, but stands ready, if the past is any guide, to cover up or bail out any ensuing problems. Where's it all headed? Time will tell.

Update of August 13, 2001: We begin this week with a review of Citigroup in five countries -- and then return to U.S. predatory lending issues.

    In Japan, the Financial Services Agency has ordered Citibank's branch to suspend operations, for at least a week, for "offer[ing] products to around 40 clients that allowed them to conceal losses on securities trades"... In Argentina, Congresswoman Elisa Carrio released a 1,500 page report on August 10, reiterating Citigroup's involvement in money laundering for ex-president Menem, including through Raul Moneta of CEI Citicorp Holdings... In Mexico, bombs went off at five branches of Banamex, Citigroup's most recent acquisition, late on August 8. The Financial Times (8/10) quotes a Mexico City analyst that "there is a sense that Mexico has sold off its financial system and this is causing a great deal of resentment"....

    Meanwhile, in Korea, Citibank is moving to buy the credit card unit of Korea Exchange Bank, according to the Chosun Ilbo of August 10. And in Brazil, Citigroup will resume its courtship of Banco Mercantil de Sao Paulo in September, according to the Gazeta Mercantil. Will there be appropriate regulatory scrutiny? You decide: the U.S. Federal Reserve Board last week mailed Inner City Press a memo, dated July 28, reciting a telephone conversation that Board staff had with Citigroup's lawyers on July 16 (the day the Board approved Citigroup - Banamex). According to the late-provided memo, Board staff "asked how Citigroup proposed to structure its indirect investment in Avantel, in light of the announcement... that Banamex must divest its controlling interest in Avantel within 90 days if Citigroup acquires control of Banacci." These memos must be provided to commenters, under the Board's ex parte rules. But here, the Fed "memorialized" its conversation with Citigroup twelve days after it happened, and mailed the memo out noticeably later than that -- after the underlying deal had been consummated....

   In the U.S., Citigroup's lead outside counsel in the Federal Trade Commission's predatory lending suit against CitiFinancial spoke at the American Bar Association's meeting in Chicago last week, drumming up business. He told those in attendance, mostly in-house bank lawyers, that "Every day, there are new class actions being filed against lenders alleging predatory lending... There is no backing away, at least from what we're seeing, on enforcement activity with respect to predatory lending." His message was clear: hire us!

    As previously reported, Citigroup's outside lawyers Mitch Ettinger and Ben Klubes had their meters running, during an investigation / intimidation mission to South Carolina that was triggered by the July 8 affidavit of ex-CitiFinancial employee Steve Toomey. This mission has resulted (so far) in Citigroup "accepting the resignation" of CitiFinancial supervisor Tim Delapaz. Citigroup has not modified the life-long gag orders it obtained from ex-CitiFinancial employees. In fact, Citigroup is trying to get more of those agreements. Why? Well, here's another account, which a CitiFinancial customer in Sacramento, California directed to ICP last week. We'll quote from the customer's August 2, 2001, letter to CitiFinancial Customer Service VP Richard Carroll, in Dallas:

This letter will respond to your deceptive correspondence, which suggests that my purchase of insurance was a choice of mine and that it was optional. The purchase of this insurance was in fact made a requirement for me to obtain the loan from your CitiFinancial office located in Sacramento, California on July 20, 2001, by Mia and the branch manager. Furthermore, I believe that my loan documents have been altered by your office to include a page in which I acknowledged that I requested insurance. I signed the documents in the presence of a witness who will recall that I signed two sets of documents, the first of which Mia pretended to destroy upon my questioning the insurance after partially signing. The second set of documents indicated that I did not want insurance at all, yet included the insurance you have detailed as optional in your form letter to me. I will be my testimony that portions of the first set of loan documents were interchanged with the final copies, which that office has refused to produce to me...

    This customer began complaining to CitiFinancial three days after the loan closing, stating that "I recently applied for a loan and was lied to and told that I had to pay for insurance on my items at home: a TV, a VCR and my bedroom set. After reading the sign on the desk, I am sure I was lied to and forced into signing up for insurance and it is not a requirement...". This complaint resulted in the above replied-to form letter, and the customer's second letter, directly to the CitiFinancial branch manager Angela:

Having received nothing by July 31, 2001, I again called your office and spoke to Tiffany... Tiffany reviewed my file and told me that the personal property insurance was in fact a requirement and that it could not be cancelled...

    The amounts at issue here are less than in the previously reported mortgage / home equity cases. But the pattern -- of loan officers making statements, presumably at management's direction, that contradict CitiFinancial's purportedly reformed policies -- is the same. Want to be strong-armed into taking out high-cost and needless insurance on your bedroom set? Call CitiFinancial....

Update of August 6, 2001: Now that Citigroup has begrudgingly acknowledged "corroborating" at least two of the allegations in the July 8, 2001 affidavit of ex-CitiFinancial employee Steven Toomey (see last week's Report, below), and now that the gag order issue has taken on something of a life of its own, we'll re-expand our focus, on Citigroup's worldwide activities.

   In an August 4 article in Canada's National Post, W. Alston Beinhold of Citigroup Private Bank is quoted: "A client deals with only one advisor at Citigroup, who discreetly handles the client's affairs for a fee based on assets invested. 'Our bankers are able to reach through organization and pull out the right products from the financial warehouse and tailor it to the needs of wealthy individuals.'" They sure did a good job for Raul Salinas, et al... As Citi's Peter Scaturro was trumpeting last week (see FT of August 3), "Citigroup Private Bank is the world's sixth biggest private bank with 90 offices in 31 countries and Dollars 153bn of assets under management." The FT went on to note: " However, its success in private banking in Asia and Latin America has not been matched in Europe." In development: a dictator-concentration index...

    On August 3, Citigroup "consummated" its acquisition of Banamex. The fast time-table was attributable to the U.S. Federal Reserve Board's "shameless capitulation" to Citigroup -- disregarding timely comments and evidence submitted in opposition to the deal, approving Citigroup's application in a mere 45 days (compared to 60 days and more in other cases, including smaller deals with fewer issues raised in opposition). When the Fed approved Citigroup's application on July 16, it informed ICP and other commenters that they could request reconsideration of the approval, within 15 days. ICP submitted such a request, summarized below, on July 30, 2001. The request for reconsideration noted to the Fed that Citigroup had, since the Fed's approval, "corroborated" at least two allegations in an affidavit by ex-CitiFinancial employee Steve Toomey, which described systemic predatory lending and consumer compliance violations at CitiFinancial. But ICP has not heard anything back from the Fed; Citigroup went ahead and consummated the deal on the first day it could...

    From the mail bag:

Subj: Citifinancial Code of Ethics
Date: 7/31/01 7:38:52 PM Eastern Daylight Time
From: [Name redacted at correspondent's request]
To: CitiWatch [at] innercitypress.org

At this time, I am unable to come forward with my real name. CitiFinancial is guilty of everything that Associates First Capital has been accused of, and has been doing it for a long time. The Operations manual reads like a consumer's dream, but I was told "not to overcomply or you will not meet your goals".... CitiFinancial's bonus program revolves mainly around insurance "sales" and I use the term "sales" very lightly. The minimum requirement is $100/1000. What that means is, if for example I make you a loan in which the total of payments is $4500, there had better be AT LEAST $450 of insurance premiums included. The superior level would be $504 in premiums, $112/1000. I have been told to put off loans that were below minimum, or find a reason to turn down, or make it so difficult that the customer would turn us down... I think you can find wrong doing in any large company, but it is running rampant at CitiFinancial. I decided that my own integrity was more important than my seniority and I left... I refused to take advantage of my customers. I think Citifinancial will be seeing more longtime employees like myself leave because of this..

Ask CitiFinancial about their "closed folder presentation". Anyone looking will have a hard time finding evidence to support most claims, because it is very rarely in written form. I may have some documents to back up what I have just told you, if you would be interested.

     We are (interested)....

Update of July 30, 2001: Three weeks after ICP filed the affidavit of ex-CitiFinancial employee Steven Toomey, more than two weeks after ICP made the Federal Reserve Board aware of Citigroup's gag order policy, and use of corporate attorneys to intimidate possible predatory lending witnesses, the story is finally being reported elsewhere. Reuters' Brinley Bruton on July 27 reported that

Citigroup has hired Mitchell Ettinger, the prominent Washington lawyer who defended Bill Clinton against sexual harassment charges, to help fight allegations of illegal lending practices and prevent former employees from bad-mouthing the financial services giant... Ettinger, who did not return phone calls to his office, impressed on former workers that Citigroup will enforce so-called non-disparagement clauses, which keep employees from making derogatory statements about the company, according to the person who was questioned by Ettinger's legal team... Ettinger has a "very folksy" manner but played up his impressive resume to those he interviewed when he visited Charleston and Columbia, South Carolina, said one of the people Ettinger's team interviewed. Ettinger encouraged them to search the Internet to find out about him, the source said. "He wanted everybody to know that he was the lawyer on the Paula Jones case and invited everybody to check him out so they would know who they were dealing with, trying to intimidate them," the source said. "It's like David and Goliath. He let (people) know that if you do stray from any agreements that you're going to be up against the full resources of a trillion dollar company."

     A media-watch aside: Ms. Bruton's protection of sources was exemplary, given the threats that Citigroup has been making... Her Reuters article appeared Saturday July 28 in (New York) Newsday and the Houston Chronicle, among others. The American Banker of July 30, in a hard-won article by Rob Garver, reports [snip]

    Now that this has been elsewhere reported, ICP can add some details: the affidavit that ICP filed with the Federal Reserve Board on July 9, in a timely comment opposing Citigroup's application to acquire Banamex, named Mr. Delapaz has having told loan officers to disregard Citigroup's announced "reforms," and the recommendations of the one CitiFinancial auditor who visited South Carolina from November 30, 2000, through May 24, 2001. The affidavit states that Mr. Delapaz cited the authority of his supervisor, Steve Diubaldo, with jurisdiction over more than one state, in directing loan officers to continue to close loans at applicants' houses, and to continue to report Home Mortgage Disclosure Act data in a way since found to violate the statute by the New York Banking Department, and referred to HUD by the Federal Reserve Board.

    Early in the week of July 23, Mitch Ettinger traveled to Columbia, S.C. to interview another CitiFinancial employee who, sources tell ICP, repeatedly raised cautions about violations of the Real Estate Settlement Procedure Act, to no avail. What will happened to Steve Diubaldo is not yet clear. Nor is what actions will be taken responding to the clear break-down of Citigroup's supposed "Ethics Hotline," to which CitiFinancial employees complained through out the Spring of 2001, to no avail. Only after ICP filed a sworn affidavit on these matters was anything done.

     Citigroup spokeswoman Leah Johnson (who bad-mouthed ICP to reporters who called her last week, trying to convince them that this story was... no story at all) issued a statement on July 26, that

We interviewed Mr. Toomey and among the many allegations he described, we were able to corroborate only two isolated incidents and have taken appropriate corrective action. Based on our full review, we believe that the behavior described by Mr. Toomey is not the way employees at CitiFinancial treat their customers.

Our severance agreements, like those of most companies, include a standard non-disparagement clause. Because of our desire to assure that our stringent standards of conduct are upheld, such clauses at CitiFinancial never apply to employees bringing any concerns about illegal or unethical activity they believe they have witnessed to the appropriate authorities inside and outside the company.

Our outside counsel conducted a proper and thorough review. No one was threatened with criminal action.

     The first paragraph begs the question: WHICH two allegations is Citigroup acknowledging were "corroborated"? The second paragraph, claiming that these gag orders are customary, leads logically to asking whether other ex-Citigroupers like John Reed and Bob Lipp (or Richard Goldman, who just left Citigroup Asset Management to take over the Guardian Park Avenue Fund) have signed life-long non-disparagement agreements. This paragraph is also patently untrue: the agreements at issue prohibit disparaging, "to any person," any Citigroup employee or business practice. The third paragraph is, as the cable television pundits would put it, "Clintonesque." ("Carefully worded" wouldn't quite capture this). Individuals were told that the loan practices they were saying they were ordered to engage in were "criminal," and that they should think serious about that (before participating in any further whistle-blowing). And the gag orders... have still not been removed. ICP has raised these issues to the Fed, in a timely request for reconsideration of the Fed's Citi-Banamex approval order of July 16....

     At week's end, the choice of Skadden Arps partners Mitch Ettinger and Ben Klubes to conduct Citigroup's investigation / intimidation mission to South Carolina became clearer: both Mr. Ettinger and Mr. Klubes are listed as Citigroup's counsel of record in the Federal Trade Commission's predatory lending lawsuit against Citigroup. Developing...

      In other Citigroup news-of-the-week, Malaysia's fifth-largest bank, AMMB Holdings Bhd, announced on July 26 that it has won central bank approval to begin sell-out talks with Citigroup... On July 24, Citigroup announced that its investment bank has hired former U.S. Energy Secretary Bill Richardson as "a consultant for its global energy and power group." 

Update of July 23, 2001 -- This week: more correspondence from Citigroup (and Inner City Press' reply); Citi dodges the Senate Banking Committee's hearings on predatory lending, bends laws in Mexico, applauds Ecuadorian bank privatization. In that order:

     Following the Federal Reserve Board's July 16 rushed approval of Citigroup's applications to acquire Banamex, for the first time in four months, Citigroup does not have an application subject to public comment pending at the Fed. For the past four months, ICP has weekly provided the Fed with evidence of problematic business practices at Citigroup, particularly (but not only) in its subprime lending unit, CitiFinancial. On July 2, the Fed committed to conduct -- for the first time -- a "thorough examination" of CitiFinancial. However, for the reasons explained in ICP's Citigroup - Banamex Watch of July 17 (click here to view), questions have arisen about whether the Federal Reserve is truly interested in getting to the bottom of CitiFinancial's practices (including by speaking with current and former employees with personal knowledge of illegal practices). Going forward, we will be identifying other forums with which to file Citigroup-related evidence. This week, however, we received another letter from the head of Citigroup's "Global Community Relations," which, in its entirety, stated:

We received the Toomey affidavit the day it was filed, and, as you have noted, have commenced a careful review of his allegations. We take such allegations very seriously and will take appropriate action when the review process is completed.

We remain concerned that you may have information that indicates violations of our policies in other locations. In your last letter, you say that you "will happily respond" to our "request for further information" once we have addressed your belief that we might take action against an employee or former employee who reports concerns about our practices or violations of our policies.

Please rest assured: we will not penalize or take action against any employee or ex-employee who reports concerns to us about our practices or violations of our policies. We have made this clear to our employees numerous times, and, indeed, non-retaliation is embedded in our policies and procedures.

The concerns you raise about the terms of a former employee's severance agreement are unfounded. Those terms, in which the form employee agrees not to disparage the Company, do not apply in circumstances in which a former employee reports to us any knowledge that he or she may have regarding ongoing violations of law or our policies and procedures. Indeed, we have had a confidential ethics hotline in place for years to ensure that employees can report any violations or concerns without fear of retaliation.

       ICP has replied:

...Your letter of July 20 argues that concerns about Citigroup's policy of seeking and obtaining gag agreements from ex-employees are "unfounded." With all due respect, our organization disagrees. While your letter claims that gagged ex-employees are free to complain to Citigroup, it does not address the larger issue: that they are prohibited from providing evidence (that is, whistle-blowing) to government authorities, or independent monitors. The recently reiterated penalty provisions in these gag orders are, despite your letter's claims, retaliatory.

The agreements in question provide that ex-CitiFinancial employees "will not make any statements to any person regarding the Company and its agents of a derogatory nature or which disparage the reputation, business or integrity of the Company or any of the executives or employees of the Company." Emphasis added. By these terms, the agreements prohibit ex-employees from providing adverse information about any employee of Citigroup (or about Citigroup's business practices) to "any person." Contrary to your letter's claim, there is no exception, even for providing information to Citigroup itself.

The agreements specify a retaliatory penalty for "a breach of any of the terms" -- "all remedies or damages at law, and in addition thereto... all costs and expenses, including reasonable attorney's fees, incurred in enforcing any rights hereunder." There is hardly a limit to the damages Citigroup could claim, for harm to its reputation. The mere threat of paying Citigroup's claimed attorneys fees is enough to intimidate ex-employees to whom Citigroup presents such agreements.

The third and fourth paragraphs of your letter refer to hypothetical situations in which employees or ex-employees report "to us" (that is, to Citigroup) "any knowledge that [they] may have regarding ongoing violations of law or our policies and procedures." This blurs an important distinction, and seems to limit even the claimed non-retaliation policy to instances where ex-employees only provide information to Citigroup internally. We are not only concerned that ex-employees cannot, by the above-quoted terms of the agreements, provide information to Citigroup itself (that is, to "any person"). We are even more concerned that the agreements, and recent actions by Citigroup, are designed to prevent ex-employees from speaking to government authorities like the Federal Trade Commission and the Federal Reserve Board, to journalists and independent monitors.

Last week, Citigroup sent lawyers down to South Carolina, purportedly as part of the "careful and thorough review" referenced in your letter. The focus of Citigroup's interrogations was as much on identifying to whom those being questioned had spoken, as on the sworn allegations (and earlier internal complaints) that gave rise to the "review process"... The threat remains that Citigroup WOULD sue under the above quoted gag orders. I find it impossible to reconcile this with your letter's claim that "non-retaliation is embedded in our policies and procedures," and with your renewed invitation that our organization, with which Citigroup has previously and recently prohibited ex-CitiFinancial employees to speak, provide you with any "information that indicates violations of our policies." We would appreciate your attempt to explain (or resolve) this inconsistency.

We found it significant that the outside counsel Citigroup sent to conduct the interrogations invited those to be questioned to "check him out on the Internet" -- a cursory Web search revealed public reports that this attorney had in previous cases sought to dig up damaging personal information against Paula Jones (see, e.g., "Clinton Team Picks Apart Jones's Life; Aggressive Tactics Decried By Lawyers for Accuser," Washington Post, February 23, 1998), had cross-examined Gennifer Flowers (see, e.g., "Bennett Decries 'Smear'; President's Lawyers Scrap Plan to Target Jones's Past," Washington Post, March 21, 1998), and was involved in attempts to procure affidavits to bury the allegations of Kathleen Willey. See, e.g., http://www.abcnews.go.com/sections/us/DailyNews/steele990503.html. Citigroup's selection of counsel to conduct this inquiry, and this counsel's tactics and underlying mission, we'll leave for another time, or another forum.

The terms of the above-quoted gag orders are factual, and, for the reasons expressed above, your July 20 letter does not allay our concerns. In my July 15 letter, ICP asked among other things you "to inquire into and make appropriate disclosures regarding this issue... and, more specifically, to have Citigroup void all such 'gag order' clauses, and to inform employees who have left CitiFinancial since November 30, 2000, that the gag order clauses have been voided." But your July 20 letter does not address these requests...

We are left, for these and other reasons, with serious doubts about Citigroup's commitment to investigate, much less reform, problematic practices within its subprime lending and other units.

All of this has pernicious effects on consumers. As simply one example, we are aware of a loan made by CitiFinancial in mid-June, 2001, in which, for less than $75,000 of credit provided to the borrower, at an interest rate over 12.5%, finance charges of over $92,000 are being imposed, including fully 400 basis points as a purported "loan discount," and a credit life insurance premium to American Health and Life of over $7,500, and a disability insurance premium of over $1,500. This is the type of loan, being made this summer by CitiFinancial, which troubles us. We have forwarded to you sworn allegations of routine forgery, back-dating of RESPA disclosures, falsification of borrowers' files, etc., and have yet to be informed of any action taken thereon. Again, for these reasons, we are left with serious doubts about Citigroup's commitment to investigate, much less reform, the problematic practices within its subprime lending and other units.

I'll conclude by reiterating ICP's July 15 request, with regard to the gag orders: ICP is asking Citigroup "to inquire into and make appropriate disclosures regarding this issue... [to] void all such 'gag order' clauses, and to inform employees who have left CitiFinancial since November 30, 2000, that the gag order clauses have been voided." We would appreciate a direct yes-or-no response to this request.

                                                     This will be updated...

       The Senate Banking Committee has scheduled two days of hearings on predatory lending, June 26 and 27. Citigroup should be a logical focus on these hearings, particularly in light of the pending Federal Trade Commission lawsuit against the company, the detailed affidavits of ex-CitiFinancial employees Gail Kubiniec and Steven Toomey, and the type of loans, and the emerging CitiFinancial "gag order" issue, recounted above. But it's not to be: among the witnesses on June 26 will be a representative of subprime lender Ameriquest, and a libertarian "scholar" from the American Enterprise Institute. No Citigroup. There's a phrase in Spanish: "con la plata, baila el perro." "For money, the dogs will dance." 'Nuf said...

      Relatedly, the mainstream media's uninformed, kid-gloves approach to covering Citigroup never ceases to amaze. In more predatory lending related news, that Citigroup's subprime lending units in May 2001 had "14,980 foreclosures in the pipeline" -- a figure disclosed in a Citigroup report to the New York Banking Department which ICP obtained under the Freedom of Information Law, then sought to disseminate -- has finally, after more than a month, been reported in another venue that this site: the industry publication "Origination News" on July 20 recites the figure, and concludes: "A spokeswoman for Citigroup declined to comment." At least Origination News decided to proceed with its report, regarding of Citigroup's "cooperation." In some other instances, Citigroup's refusal to confirm or deny simple factual questions results in Citi-skeptical stories never running at all. That may, however, end this week, on an issue recounted above...

   It's as if the mainstream financial press thinks that Citi's subprime lending is small side business for it. But it's not: reporting on Citigroup's earnings, the Baltimore Sun of July 17 noted that Citigroup's "profit was propelled by a 40 percent gain from consumer lender CitiFinancial, formerly known as Commercial Credit Co., which made $286 million in the quarter compared with $205 million a year earlier. In the first six months of the year, CitiFinancial made $498 million, up 30 percent from a year earlier." Which makes the mainstream press' slap-dash coverage of CitiFinancial even more difficult to understand...

       From the where-are-they-now department: Sandy Weill's former co-head of Citigroup, John Reed, is being named senior advisor to the board of directors of Japan's Shinsei Bank (f/k/a the Long-Term Credit Bank of Japan, before its bail-out by the government).

      Now, two Latin American news items on Citigroup: in Mexico, Citigroup is already using a technique it fine-tuned in the United States: getting regulatory agencies to waive provisions of law, for long enough for Citigroup to lobby (that is, pay) to have the law changed. It happened in the U.S., with the Federal Reserve Board's 1998 approval of the Citicorp - Travelers merger (the Fed gave Citi 2 years to have the Glass-Steagall Act repealed, which was accomplished, after millions in campaign contributions, in 1999). Among Citi's problems in Mexico is how to hold on to the telecommunications company Avantel, which is 45% owned by U.S.-based WorldCom, and 55% owned by Banamex, which Citigroup is buying. Mexican law prohibits foreign stakes of over 50% in telecommunications companies - Avantel would be 100% owned by companies based in the U.S.. But on July 17, Banamex president Roberto Hernandez told reporters that Mexican authorities were "allowing Banacci to break the rules for a period while it figured out a scheme that would work." The regulator who's allowing Citigroup to "break the rules" is Jorge Nicolin, president of the Federal Telecommunications Commission (Cofetel), who has said that the Mexican Congress will "have the last word on whether the rules on foreign majority ownership could be modified." Let the campaign contributions begin!

     In Ecuador, as the government moves to finalize the re-privatization of the bailed-out Filanbanco, economics minister Jorge Gallardo says that this "market solution" puts an end to the banking crisis. In a television interview on July 17, Gallardo thanked the private banking sector for its "patriotic intervention" in the planned purchase of Filanbanco's assets. The bail-out money will never be paid back, while Ecuador continues to cut subsidies and otherwise "structurally adjust," under the watch of the International Monetary Fund. On July 17, 40,000 government employees went on strike, to protest these austerity and privatization moves. But from Wall Street, this pronouncement -- "This is in everybody's best interests" -- from Leo Goldstein, an economist at Citigroup's investment bank Salomon Smith Barney...It all depends on how you define "interest" -- and in how you define "everybody".... 

Note of July 17, 2001: In a shameful capitulation to Citigroup's hunger to expand, this time in Mexico, the U.S. Federal Reserve on July 16 approved a portion of Citigroup's proposal to acquire Banamex.   See, e.g., "Fed Clears Citigroup Buy of Banacci," Reuters, July 16, 2001.  Citigroup radically amended its Banamex application on July 12, to get the Fed to vote on the bare-bones of the proposal on July 16. ICP's Citi - Banamex Report explains why (click here for analysis). But these investigations continue. While Citigroup has yet to respond to the letter set forth in the Update of July 16, below, Citigroup has sent several $400 an hour lawyers down to South Carolina, to investigate (some say, "intimidate").  So -- watch this space."

Update of July 16, 2001: This week: CitiFinancial, with a focus on the South; and then related environmental and electronic benefits transfer news. In that order:

     Following the revelation on July 9 of serious irregularities at CitiFinancial -- irregularities that were brought to Citigroup's attention weeks ago, through internal complaints to Citi's purported "Ethics Hotline" -- Citigroup moved into high gear, sending in a team of auditor's to CitiFinancial's Columbia and Charleston, South Carolina offices, and sending down a team of lawyers from its outside counsel, Skadden Arps. Questions have arisen about loans for which CitiFinancial falsified documents (in one instance, using a photograph of one house to obtain property insurance on an entirely different house which, because it didn't and doesn't have front steps, was ineligible for the homeowner's insurance policy). An emerging issue is a boilerplate "gag order" -- prohibiting ex-employees from providing evidence or in any way "disparaging" Citigroup -- that Citigroup has apparently sought from ex-employees, as a matter of policy, since acquiring Associates on November 30, 2000. Regulatory experts whom ICP has consulted have used words like "obstruction of the regulatory process" when questioned about the propriety of these gag orders. The Federal Trade Commission sued Citigroup for predatory lending on March 6, 2001, and, since then, the Federal Reserve has begun an inquiry into CitiFinancial, and has announced it will be conducting a "thorough" examination of the company. Citigroup was asking people to sign the gag order well after March 6, 2001... There more to report on all this, but, in an excess of caution, it will have to wait.

     Ironically, in light of these gag orders, Citigroup's "Senior Vice President for Global Community Relations" faxed ICP a letter on June 11, clearly triggered by ICP's submission to the Federal Reserve Board of the sworn declaration of ex-CitiFinancial employee Steven Toomey (quoted in last week's Report, below), asking ICP to provide such complaints to Citigroup. The letter begins:

On a number of occasions you have spoken publicly about specific Citifinancial employees who have participated in actions that are contrary to Citifinancial's stated policies.

As we have stated many times, we are very serious about maintaining high ethical standards. If you know of specific cases where current or former employees have violated the law or our procedures, we would like to know about it so that we can investigate and fix whatever problems are surfaced.

As you know, we have announced a number of initiatives over the past few months to ensure that our standards are the highest in the industry. We have compliance processes and procedures, employee training and third party mystery shopping of our sales people to be sure that we, in fact, are living up to those standards. We would welcome any specific information you have that would help us identify any problems we should address.

    We call the letter ironic, because it implies that ICP has not provided specific information -- Steve Toomey's affidavit, faxed to the Federal Reserve and to Citigroup's counsel on July 9, is eminently specific. It names CitiFinancial branch managers who instructed employees not to implement the reforms that Citigroup was presenting to its regulators. The letter is doubly ironic is that Citigroup has been seeking agreements from ex-CitiFinancial employees prohibiting them from providing evidence or "disparaging" Citigroup in any way... Nevertheless, further detailed information has been provided, to regulatory agencies and to Citigroup, since the above-quoted July 11 letter, to which ICP has now replied:

    We are in receipt of your letter of July 11, encouraging Inner City Press to provide further information to Citigroup. We were somewhat confused: while your letter begins by noting that "on a number of occasions [we] have spoken publicly about specific CitiFinancial employees who have participated in actions that are contrary to CitiFinancial's stated policies," our organization's approach has not been to scapegoat specific employees, and has not been limited to "sp[eaking] publicly." On July 9, we submitted to the Federal Reserve Board, and to Citigroup's counsel at Skadden Arps, a copy of a sworn declaration by an ex-CitiFinancial employee, Steven Toomey, stating among other things that he witnessed illegal acts in the Charleston, S.C., office of CitiFinancial, and that several of the "reforms" regarding which Citigroup has publicly made representations were not, in fact, carried out. I trust that you have a copy of Mr. Toomey's declaration; in case you don't, I am attaching a copy of it to this letter.

    Your letter implies that we have not provided Citigroup with specific information. But as the attached attests to, we have. And, to date, Citigroup has made no formal response, to the Federal Reserve Board or elsewhere, to Mr. Toomey's statement. In the American Banker of July 10, 2001, Citigroup was quoted that "Mr. Toomey, an Associates employee for just six months, only in the last few weeks raised issues related to branch sales practices when he concluded that the company would not pay him monies that he demanded to resolve an employment dispute." If Citigroup is going to malign the motives of employees or ex-employees who do come forward, your statement that "we would welcome any specific information that would help us identify any problems we should address" cannot be taken at face-value.

    Worse, we have become aware that Citigroup, since acquiring Associates First Capital Corp. on November 30, 2000, has been requesting and obtaining "gag orders," barring ex-CitiFinancial employees with knowledge of illegal and otherwise materially adverse practices at CitiFinancial from providing such information, not only to Inner City Press, but also to the Federal Reserve Board (Citigroup's and CitiFinancial's primary supervisor, which as you know has committed to conduct a thorough examination of CitiFinancial) -- or to the Federal Trade Commission, which on March 6, 2001, filed suit against Citigroup for predatory lending.

   If you were not yet aware (see below), these Agreements have sections which prohibit ex-CitiFinancial employees from making

any statement to any person regarding the Company and its agents of a derogatory nature or which disparage the reputation, business or integrity of the Company or any of the executives or employees of the Company.

   The first paragraph of these Agreements define "the Company" as CitiFinancial Mortgage Company and its parent, affiliates and subsidiaries: that is, Citigroup as a whole (including, ironically, its "Global Community Relations" unit). Another paragraph of the Agreements is even more specific, prohibiting ex-CitiFinancial employees (and any person they "now or hereafter may control, directly or indirectly") from promoting, instigating, assisting or participating "in any claim, proceeding or litigation charging the Company with any act or omission." Emphasis added.

    While various experts consulted by ICP have opined that Citigroup's gag order would probably not be enforced by a court, due to unconscionability, the Agreement have nevertheless created fear (as they were apparently intended to) among ex-CitiFinancial employees, that if they come forward with information, they will be sued by Citigroup. Our organization hereby asks you, in the spirit of your letter, to inquire into and make appropriate disclosures regarding this issue -- ironically, Citigroup is not barred, by the terms of the Agreement, from disclosing the agreements -- and, more specifically, to have Citigroup void all such "gag order" clauses, and to inform employees who have left CitiFinancial since November 30, 2000, that the gag order clauses have been voided. Only then could we take your invitation to submit to you the information that your letter requests.

    We are aware that Citigroup and its counsel are now requesting meetings with various current and former CitiFinancial employees in South Carolina. While we hope that this is an inquiry undertaken in good faith, to "identify any problems [Citigroup] should address" (as your letter puts it), concerns have been expressed to us that these "visits" are either misleading, or intended to intimidate, or both... These communications have been inconsistent with Citigroup's previous statements about serious, objective investigation of claims; they are doubly troubling in light of your letter's attempt to focus on "specific cases where current or former employees have violated the law." In any event, as Mr. Toomey's declaration makes clear, the direction to violate law, Citigroup's announced commitments, and even the recommendation of CitiFinancial auditors, came from supervisory personnel, and not from the loan officers themselves.

Beyond the sworn statements in Mr. Toomey's July 8, 2001, declaration, Citigroup had previously been made aware of a plethora of compliance and other problems at the Charleston CitiFinancial Mortgage office. By, at latest, July 3, Citigroup had been directed to particular loans files...  ICP has been told of loans that CitiFinancial Mortgage made in December 2000 (that is, after Citigroup acquired The Associates) that were refinanced, with all the attendant fees (that is, "flipped") less than four months later. While Citigroup headquarters alluded to a document it said should be signed by prospective "flippees" (disclosing, in paraphrased form, that "we are refinancing your loan, there is a chance it will cost you more"), this document was rarely if ever provided to those targeted with refinance loans, much less signed by them. This, too, can be easily verified. ICP has also learned that, while Citigroup's headquarters were e-mailing loan officers to restrict certain business with brokers, management in the Charleston office explicit told employees to continue all broker business, and to disregard the other Citigroup instructions... We do not believe that these practices were or are limited to South Carolina.

We continue to await Citigroup's substantive response to the issues raised under oath by ex-CitiFinancial employee Steven Toomey, and we await your response to the gag order issue raised above, including a commitment to void all such gag orders, and provide appropriate notice to current and former CitiFinancial employees. Following this, we will happily respond to your request for further information.

Sincerely, etc.

    Citigroup is asking the Federal Reserve for yet another favor, to expedite approval of its application to acquire Banamex (click here for an update). Now, the abbrieviated Citigroup report-of-the-week: in environmental news, Citigroup's insurance division, Travelers, is a major stakeholder in Texas-based Matador Petroleum, according to a prospectus filed with the SEC on July 11... In electronic benefits transfer news, Citigroup is moving forward with its sole-source contracts in Indiana, Iowa, Nebraska, Nevada, Virginia, and California: on July 9, it announced it will use VeriFone's Omni 3200 countertop payment terminals in those states...

Update of July 9, 2001: We want to -- and soon will -- return to a wider-scope CitiWatch Report, but the allegations against CitiFinancial continue to come in, fast and furious. On July 8, another ex-CitiFinancial employee sworn out an affidavit, which ICP has now submitted into the record before the Federal Reserve Board on Citigroup's applications to acquire Banamex. In pertinent part, this now-on-the-record source, Steven Toomey, who worked at CitiFinancial's Charleston, South Carolina office until May 24, 2001, declares under oath that [available elsewhere on this site -- including in ICP's comments on Citigroup's merger applications].

    Meanwhile, Citigroup is buying up high-interest rate consumer finance lenders all over the world. In the United Kingdom, Citigroup has just reached a deal to buy one of the U.K.'s few subprime lenders, "Future Mortgages." And the American Banker reported last week that Citigroup has surpassed Deutsche Bank, as the largest bank holding company in the world. Citigroup has responded to the Fed, regarding the numerous confirmed instances of money laundering at Citigroup, that "the seriousness of Citigroup's commitment is reflected in the recent announcement that Richard Small, the Federal Reserve's leading anti-money laundering enforcement officer since 1989, will join Citigroup...".  Rest assured: the conflict-of-interest and revolving-door problems this raises have been put to the Fed, on Citigroup's Banamex application.

Update of July 2, 2001: Late on the afternoon of July 2, the Federal Reserve Board announced that it had approved Citigroup's long-pending application to acquire European American Bank. At first (and subsequent) blush, it was inappropriate for the Fed to grant approval while, for example, the sworn allegations of systemic predatory lending at CitiFinancial, by long-time CitiFinancial Gail Kubiniec, remain unresolved. The Fed latches on to two Citigroup announcements, both in the last week (and reported here), on which the public had no opportunity to comment to the Fed.      There's one positive development, buried in the Order at page 30: the Fed will conduct a "thorough examination" of CitiFinancial (or, more precisely, of CitiFinancial's operations of, and changes to, The Associates), and, the Fed will require Citigroup to file quarterly updates on subprime lending-related litigation against it, for the next two years. This examination process, however, will be presumptively confidential, and in effect moves these troubling issues out of the applications process, to a behind-closed-doors process that Citigroup can dominate.   In the only part of the Order addressing Citigroup's lack of environmental, social and human rights standards, the Fed blandly states that the issues raised don't impact on Citigroup's "safety and soundness."   That's disputable - and will be disputed, in connection with Citigroup's still-pending Banamex application (the comment period on which extends until at least July 9, 2001).

   The Fed's Citi-EAB Order is available, in PDF format, by clicking here.   ICP's more detailed critique of the order is here. 

Update of July 2, 2001: There were two Citigroup announcements last week (reviewed, in "real time," in our June 28 midweek Report, below). Neither announcement -- a new lending pledge in New York State, and a vague commitment to cease offering single premium credit insurance, as some unspecified date in the future -- resolves the problems with Citigroup's applications to acquire Banamex. Click here to view ICP's July 1 comments on Banamex. Citi's cynical spinning of the media is review in this week's ICP Community Reinvestment Report; Citigroup's dominance of the Federal Reserve Board is exemplified by the fact that the FRB placed Citigroup's application to acquire EAB on its agenda for action on July 2, despite, among other things, the New York Banking Department's June 22 finding that the Home Mortgage Disclosure Act data that Citigroup filed on March 1, 2001, is "erroneous." The Fed has a duty to act on this issue, nationwide -- but apparently the urge to approve another Citigroup's expansion application, regardless of Citigroup's record and recent revelations, was too strong... Now, a detour into other Citigroup issues (with a focus, for this week, on the U.S.):

   In U.S. environmental news, residents of South Denver are protesting the EPA's closed-door negotiations with Citigroup, which owns the Shattuck Superfund site. As reported in the Denver Post (6/28), "they don't like the idea of Shattuck and Citigroup being released from all future liability without getting a say in the decision. Citigroup was one of the top campaign contributors to President Bush (and Democratic candidate Al Gore). And EPA chief Whitman has family financial ties to the company" (reported on in earlier this year, below).

     In "free trade" news, on June 26 a bill to give President Bush "trade promotion authority" (a/k/a "fast track") was introduced in the U.S. Senate. A corporate lobbying group for the bill has already been formed, called "U.S. Trade." Among the members is... Citigroup, which is taking a lead role. On July 29, Citigroup's Lionel Johnson was one of nine presenters at the Heritage Foundation's Washington shin-dig on "Advancing Free Trade," along with U.S. Trade Representative Robert Zoellick....

     Meanwhile, Citigroup is praising (and stands to benefit from) "reforms" imposed on Turkey by the International Monetary Fund. "If this deal does not happen . . . we will still be talking about the old (unreformed) Turkey," said Citigroup's Haluk Akdogan, adding that "foreign capital has got to come in because it will bring know-how, genuine competition, and proper banking products." Citigroup has been in talks to acquire Turkish bank TEB...

   Finally, for this week, some recent "insider trading" news:

Jay S. Fishman, Citigroup chief operating officer, sold 10,000 shares of common at $ 52.56 each on May 24 and now directly and indirectly holds 684,856.

Michael A. Carpenter sold 103,462 shares of common at $ 52.09 each on May 23 and now directly and indirectly holds 868,772.

Victor J. Menezes exercised an option for 39,400 shares of common at $ 3.30 each on May 24 and sold 39,400 shares at $ 53 each on May 24 and now directly holds 1,371,856...

    On the regulatory front, the U.S. Federal Reserve has still not provided any documents about its communications with Citigroup (and Citi CEO Sandy Weill) just prior to Citi's May 17 announcement of its Banamex deal. ICP requested a summary, and documented under the Freedom of Information Act, on May 23. A month later, on June 25, the Fed wrote to ICP, extending the time for its response until July 9 -- the expiration of the Citi / Banamex comment period...

Update of June 28-29, 2001: On June 28, Citigroup e-mailed journalists to announce that "in the coming weeks, we are going to stop offering single premium credit insurance on mortgage loans." Some of the resultant press coverage accepted Citigroup's spin, that the announcement was simply one in a series, directed at bringing the operations of Associates First Capital up to CitiFinancial's standards.  Reuters said that Citigroup "already took other steps to clean up lending practices at Associates, which it merged into its CitiFinancial arm." Dow Jones reported that "in March the Federal Trade Commission sued Associates First and its owner, Citigroup, for alleged predatory lending." What these articles missed is that the FTC sued Citigroup's pre-Associates subprime lender, CitiFinancial, as well, and that through the FTC litigation, a sworn affidavit by long-time CitiFinancial employee Gail Kubiniec, reproduced below on this page, has provided a road-map of CitiFinancial's predatory practices, which go well beyond single premium credit life insurance. The American Banker quoted praise for Citigroup from New York politicians Chuck Schumer and John LaFalce, neither of whom addressed Ms. Kubiniec's detailed description of CitiFinancial predatory practices not related to insurance. In the N.Y. Times, Sen. Schumer was quoted: "Citigroup really deserves a pat on the back...". The Financial Times ("Citigroup Bows to Pressure" -- click here to view) reported that "consumer groups were unconvinced, suggesting that the move was