Wednesday, December 1, 2004
Citi Japan top exec grilled over violations
REUTERS
TOKYO: Citigroup's top executive in Japan endured unprecedented questioning by lawmakers on Tuesday over a scandal at the firm's private bank in the country, the latest turn in a high-profile case that has embarrassed the world's biggest financial company.
Citibank Japan CEO Douglas Peterson told a parliamentary finance committee that lax corporate governance and an "aggressive sales culture" were behind abuses at the private banking unit, ordered closed by regulators in September.
"What's very important now is that we learn from those mistakes," Mr Peterson said after repeating a public apology issued by Citigroup CEO Charles Prince in Tokyo last month.
It was the first time the Upper House committee had called a non-Japanese witness, reflecting the intense public interest generated by the case.
The private bank was cited for widespread violations including manipulative sales practices and failure to screen out money laundering, and its closure was among the harshest punishments issued to a foreign financial firm in Japan.
Mr Peterson said six employees in Japan had been fired outright over the scandal, including three managing directors, and another eight had been "asked to leave". Citibank had previously said 12 employees had left, without giving details.
Mr Peterson emphasised Citigroup's efforts to fix "very serious failures" in its compliance system. "It's a very important cultural issue within Citibank Japan," he said.
A team of more than 100 people was reviewing transactions conducted by the private bank to determine whether any further violations occurred, he said. Citigroup last month ousted three top New York executives over the scandal, including vice chairman Deryck Maughan.
Under a clean-up plan submitted to Japan's Financial Services Agency (FSA) last month, the bank pledged tighter integration and local control of its Japanese units. Previously, each had reported independently to its New York headquarters.
Mr Peterson was previously in charge of the bank's asset management, investment and commercial banking operations in Japan. He took responsibility for all its Japanese operations as part of the reshuffle.
The Japan scandal added to a string of regulatory problems at Citigroup's global operations, which have triggered analyst downgrades and battered its share price.
Japanese regulators had also faulted Citigroup for misleading clients in a series of private bond sales, and in October, the bank paid a record $250,000 fine for distributing misleading sales material on hedge funds.
Citigroup's European operation, meanwhile, has been forced to apologise for a huge government-debt trade, and South Korea has launched a probe into Citigroup's private banking business there.
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