[lbo-talk] Citi Japan top exec grilled over violations

Wed Dec 1 06:42:04 PST 2004

The Economic Times

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.