Citigroup, operating as Citi, is a major financial services company based in New York City. Formed by the 1998 merger of Citicorp and Travelers Group, the company employs 332,000 people around the world and holds over 200 million customer accounts in more than 100 countries.
Citi was implicated in various financial scandals of the early 2000s, including Enron and WorldCom. More recently, it has suffered massive losses from subprime mortgage securities and had to turn to sources such as the Abu Dhabi Investment Authority and the government of Singapore for $20 billion in capital infusions.
The history of the company is, thus, divided into the workings of several firms that over time amalgamated into Citicorp, a multinational banking corporation operating in more than 100 countries; or Travelers Group, whose businesses covered credit services, consumer finance, brokerage, and insurance. As such, the company history dates back to the founding of: the City Bank of New York (later Citibank) in 1812; Bank Handlowy in 1870; Smith Barney in 1873, Banamex in 1884; Salomon Brothers in 1910.
The number of corporate crimes that Citigroup has been involved in, is extremely long. Here we only highlight a few of them.
Phony foreign exchange trades and loans
Between 1973 and 1980, Citibank shifted about $58 million in profits from high-tax to no-tax jurisdictions through phony foreign exchange trades and loans. These foreign exchange operations were known as "parking."
Exchange law controls aim to prevent excessive "shorting" of currencies. To short a stock or a currency is to sell it when you don’t have it. If a trader thinks the Swiss franc is going down, he will sell it. He doesn't have to have it to sell it. Governments believed that people who shorted their currency would drive down its price. Therefore, many countries established limits for how large a position in their currency a bank could have. To avoid the limit, Citibank traders put their "positions" offshore.
Money laundering in Chile
In October 2004, Chile's tax authorities filed a lawsuit for tax evasion against former military dictator Augusto Pinochet. One of his tax-evasion money-laundering banks was Citibank, which hid and laundered at least $5 million and perhaps millions more, according to the U.S. Senate Permanent Subcommittee on Investigations.
Citicorp, through its Citibank subsidiaries, was the largest U.S. lender to South Africa during the Apartheid, with $800 million in loans to that country. This figure represented a quarter of the total $3.2 billion in current U.S. loans to South Africa. Citicorp's South Africa related lending policy was that of providing loans to both the public and private sector. Until 1985, Citicorp's official South Africa lending policy continued to allow loans to both private and public sector borrowers. But as a result of intensified pressure from anti-apartheid forces in the U.S., as well as new Federal restrictions on bank lending to South Africa, Citicorp was forced to end all loans to the public sector in 1985.
Deregulation and the Enron Scandal
In the 1990s, the venerable old Glass-Steagall Act -- the act established the Federal Deposit Insurance Corporation (FDIC) in the United States and included banking reforms, designed to control speculation -- came under sustained attack by Citi and other big financial interests who promised great efficiencies would come from the kinds of consolidation that the law specifically prohibited. By 1997, the Act had been weakened enough to allow banks to acquire securities firms outright. By 1999, thanks to a lobbying effort led by Citibank and others, Glass-Steagall was essentially history. At long last, investment banking, insurance, and financial underwriting were back under the same umbrella again.
With the law’s repeal, J.P. Morgan Chase & Co. and Citigroup, Citicorp’s successor, were free to both lend money and underwrite securities for Enron, WorldCom and others. Citigroup, for instance, was paid a total of $167 million by Enron for various services from 1997 to 2001. Citigroup and J.P. Morgan Chase repeatedly issued Enron huge loans that were disguised as energy trades --which then enabled Enron to misstate the loan proceeds as cash flow from business operations, misleading investors, analysts, tax collectors, and employees who lost their life savings and jobs--. As Sen. Carl Levin (D-Mich.) testified in one of the many congressional investigations of Enron, this one leading to a major investigative report on "The Role of the Financial Institutions in Enron's Collapse" (click here for volume 1; and volume 2): “Citigroup and Chase…not only assisted Enron, they developed the deceptive pre-pays as a financial product and sold it to other companies as so-called balance sheet-friendly financing, earning millions of fees for themselves in the process.” Meanwhile, even though these banks knew just how shaky Enron’s finances really were, they happily pushed investors to buy more Enron stock through their brokerage arms. Certainly, they issued no warnings, not even to credit agencies.
Citigroup was one of the most active financial institutions involved in the re-shaping of Iraq' economy particularly at the early stages of the occupation. During this period Citigroup was offering substantial loans to private enterprises guaranteed against future sales of Iraqui oil.
Citigrup had an influential position with the Iraq Panel of experts who were supposed to come with a solution for Iraq. The ten member panel -- aided by issue-specific sub-groups comprised of 44 experts from academia, government, and the private sector -- advised a "redeployment" and "transition from a combat role to a support role" for U.S. military forces in Iraq. The advisors to the panel - as opposed to panel members themselves - include representatives of Bechtel, Citigroup, the American Enterprise Institute, the Heritage Foundation, and the Hudson Institute.
In July 2005 Citibank participated for a sum of € 145 million in a revolving credit of € 3 billion for EADS, EADS was the War Profiteer of the Month No 8 and No 15.
2008 Bailout Details
US Treasury and the Federal Deposit Insurance Corporation (FDIC) agreed to back $306 billion of residential and commercial loans and securities on Citigroup's balance sheet. In exchange, Citigroup agreed to issue preferred shares to the Treasury and FDIC. Treasury also agreed to invest $20 billion in Citigroup from the Troubled Asset Relief Program (TARP) in exchange for preferred stock with an 8% dividend to the Treasury. The day before the announced agreement the company's stock was trading at $3.77 -- a price that represents a total loss of $244 billion in value in just two years.
Citigroup also agreed to comply with executive compensation restrictions, and the FDIC's mortgage modification program. Citi simultaneously announced that it would cut 52,000 jobs.
The bailout was a big profiteer opportunity for these financial institutions and their shareholders and noted by Naomi Klein in her article "The Bailout Profiteers":"this is what U.S. taxpayers received: no controlling interest, no voting rights, no seats on the bank boards and just five percent in dividend payouts to the government, while shareholders continue to collect billions in dividends every quarter. What's more, golden parachutes and bonuses already promised by the banks will still be paid out to executives — all before taxpayers are paid back.".
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