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A Former Exec at Citibank Raises Alarm Bells in Federal Court Over Failed Risk Controls Inside the Bank

By Pam Martens and Russ Martens,

Jane Fraser, Citigroup CEO

Kathleen Martin, a former Managing Director at Citigroup’s federally-insured bank, Citibank N.A., has sued the bank and her former boss, Anand Selva, in federal court in Manhattan. According to Martin’s lawsuit, she was hired for the express purpose of making sure that Citibank complied with a Consent Order from a federal banking regulator. Instead, Martin alleges, she was fired in retaliation for refusing to file false information with that regulator.

The first thing you need to know about Citigroup/Citibank is that it is a recidivist megabank – serially charged for wrongdoing by its regulators while also being perpetually bailed out by the Fed.

This particular saga of sticking its finger in the eye of its regulator began on October 7, 2020 when the federal regulator of national banks, the Office of the Comptroller of the Currency (OCC), slapped a $400 million fine on the bank. The accompanying Consent Order stated that the OCC had “identified unsafe or unsound practices with respect to the Bank’s internal controls, including, among other things, an absence of clearly defined roles and responsibilities and noncompliance with multiple laws and regulations.”

In a sign of just how alarmed the OCC was with the conditions it found at Citibank, the Consent Order indicated that if the OCC did not determine that the bank was making “sufficient and sustainable progress towards achieving compliance with this Order,” the OCC was reserving the right to fire any or all members of the Citi Board of Directors as well as “senior executive officers.”

And just exactly what were these alarming conditions the OCC found at Citibank? As is typical of bank regulators, the OCC did not spell out with any granularity what it had found at the bank, but the word “capital” does appear multiple times in the Consent Order. For example, the OCC writes:

“The Bank shall improve the Bank’s capital planning processes that shall, at a minimum, ensure: (a) the development of and adherence to effective governance over capital planning and calculations; (b) that capital and risk-weighted assets are appropriately identified and reported; and (c) that periodic assessments of the Bank’s capital calculations and management and regulatory reporting ensure the capital calculations adequately take into account the Bank’s size, complexity, and overall risk profile.”

For an idea of what might have been raising alarm bells at the OCC in regard to capital at Citigroup’s Citibank, see our report: Citigroup Has Been Paying Out More than It Earned for Years; Now It Has $102.5 Billion in Debt Maturing within Three Years. (Retaining earnings adds to capital at banks; using those earnings to buy back stock in order to prop up the share price can erode the capital base of a bank.)

The OCC’s Consent Order also used the word “liquidity” multiple times. Things do not seem to be moving in the right direction there either. See: Citigroup’s Citibank Took the Largest Amount of Loans from the FHLB of NY in 2022, Reminiscent of FHLB Loans Taken by Silvergate, SVB, Signature, and First Republic Bank; and After Getting the Largest Bailout in U.S. History in 2008, 85.5 Percent of the $1.34 Trillion in Deposits at Citigroup’s Citibank Lack FDIC Insurance Today.

If the Kathleen Martin lawsuit has a familiar ring to it, that’s because something quite similar happened in the same courthouse in 2021. A former compliance attorney at JPMorgan Chase, Shaquala Williams, alleged in a lawsuit that she was fired in retaliation for reporting wrongdoing at the bank. That case was also related to alleged attempts to make regulators think the bank was complying with regulatory orders when it was all a sham.

Williams charged in her lawsuit that JPMorgan Chase was keeping two sets of books and effectively making a monkey out of the U.S. Department of Justice by brazenly flouting the non-prosecution agreement it had signed with the Justice Department in a previous case.

In 2016 the Justice Department had charged that JPMorgan’s Asia subsidiary engaged in quid pro quo agreements with Chinese officials to obtain investment-banking business and had falsified internal documents to cover up the activities. The quid pro quo agreements involved the bank putting the children of high-ranking Chinese government officials on its payroll in order to enhance its business interests in China. In exchange for avoiding prosecution by receiving a non-prosecution agreement, the Justice Department required the bank to put in place compliance controls around third-party payments. Williams alleges, among other serious charges, that the so-called third-party payment controls were a sham and that when she blew the whistle to her superiors at the bank, JPMorgan Chase retaliated against her by firing her in October 2019.

It came out in Williams’ deposition testimony, which is part of the court record, that one of the people being paid under her allegation of the bank keeping two sets of books was Tony Blair, the former Prime Minister of the U.K. (See our report: JPMorgan Whistleblower Names Former U.K. Prime Minister Tony Blair in Court Documents as Receiving “Emergency” Payments from Bank.)

The Williams case was quietly settled 10 days before the trial was set to begin. The Judge presiding over the case was Jed Rakoff – the same Judge who presided over multiple cases last year involving JPMorgan Chase’s financial involvement with sex trafficker Jeffrey Epstein. (See our report: Judge Jed Rakoff Has Regularly Dined in the Past with the Chairman of the Law Firm that Just Got a Big Win in His Court in the JPMorgan Sex Trafficking Case.)

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