When the Citi sleeps PDF Print E-mail
Wednesday, 05 January 2011 00:00
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Going by the findings of various KPMG fraud surveys over the years—75% of respondents in the latest survey felt corporate fraud was on the rise—it’s not difficult to believe Shivraj Puri was running a solo operation, that neither Citibank nor its top executives were part of the Rs 400-crore fraud he is believed to have perpetrated while working as a relationship manager in the bank. Certainly, the fact that the corporates and high net worth individuals Puri took money from didn’t have a problem transferring huge sums of money to the account of a ‘Premnath’—Puri’s grandfather—instead of to an official Citibank account suggests Citi wasn’t involved. Since these individuals would know the difference between giving their money to Citi and to an account within Citi, presumably this would also suggest they weren’t exactly above board either—possibly this means there could be more Sanjay Guptas out there, the Hero Honda official who is supposed to have taken bribes from Puri to transfer company funds his way. And it shows they were naïve if they thought Sebi would approve a scheme that guaranteed returns of around 2% per month. In other words, on the face of things, it doesn’t appear as if this is more than a case of a fool and his money being parted sooner rather than later.

The larger problem, and this is where RBI comes in, is what it says about Citibank itself. While the Premnath account was first opened in September 2009, Citi officials say the real money started coming in only in October and November 2010. So, for the sake of keeping it simple, this means Rs 200 crore flowed into the Premnath account each month, and flowed out within hours of coming in, and into broker accounts within the same bank. And yet, no alerts got triggered—not even one saying large sums of money were suddenly coming into an account, which, till recently, had significantly smaller sums being transacted. Citi, like all banks, has transaction monitoring reports that track all such movements on a real-time basis; reports get generated automatically by the system and a copy goes directly to the compliance department, apart from to various managers within the branch/bank. It is routine practice for branch managers to meet top clients to satisfy themselves on money coming in and out; it’s part of RBI’s Know Your Client policy; the law requires reporting of such large transactions to the finance ministry’s Financial Intelligence Unit. A branch manager’s job is not just to get his relationship managers to bring in more customers, it is to know where the money is coming from and where it is going. So even if Citi’s top managers were not involved, they’re clearly guilty of sleeping on the job and not reporting transactions they are legally bound to. That the fraud was finally detected by Citibank does mitigate things somewhat.


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