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The Citibank Fraud: As The Mystery Unfolds

Posted on January 10, 2011 in Business and Economy

By Shivani Singh:

December 29th 2010– another scam unravels itself to paint the face of India with corruption. The Citibank scam which is slowly taking the shape of a huge national economic disaster of over 88 million dollars. This incident came to light when one of the Citibank’s HNI customers lodged a complaint in the DLF-II police station. Shiv Raj Puri was arrested for being the mastermind of this scam — a citibank employee. Though Sanjeev Aggarwal (MD-Helion ventures) had named top 11 Citibank officials including — Vikram Pandit-CEO, Chairman William R Rhodes, Chief Financial Officer John Gerspach and Chief operating officer Douglas Peterson only Shiv Puri has been arrested. The police pointed out that since we are only at the stage of registering an FIR so Global CEO cannot be questioned. Their active knowledge has to be proven before they are held whether direct involvement or criminal  negligence. The key charges leveled against them are falsification of accounts , breach of trust and criminal negligence.

The exact modus operandi is yet to be investigated but the sequence of events which led to the scam are as follows :-

  1. All the HNI (High net-worth Individuals) customers which have wealth management accounts in the Citibank have relationship managers as a practice to maintain the connection between the bank and customer .
  2. Shiv Raj Puri was one such relationship manager of Sanjeev Aggarwal. As a custom, the manager gets documents signed from the customer which are blank and then they fill the details of the respective security depending on the instruments they want to buy and sell.
  1. Then instead of moving money into the customers account, using the documents the money was sent to Puri’s personal accounts for 1 year.
  2. Citibank kept sending bonafide email statements showing their money was intact.
  3. Citibank sold to them as income funds but instead of buying it in their names, the money was moved into Puri’s accounts in Religare and Bonaza.
  4. Then this money was moved into the stock exchange.

Now, since the scam is being investigated and each new day brings out new revelations, many doubts are being raised. Citibank says none of its top officials are involved and they themselves are investigating the case. But Sanjeev Aggarwal alleges that it is due to systemic failure — couldn’t have been done alone. Who is to blame? Can’t the bank know if one individual is a fraudster?

If Puri had been operating for close to a year and a half now, how come the bank got to detect it only this month? The system of the bank is not foolproof? The investors are also to blame — why did none of the HNI customers come forward and lodge a complaint with the police — Is there a hawala angle to it ?

Why were the investors so careless about their “life time savings” that they didn’t notice the discrepancies in the bank statements between the hard copy and the soft copy? America’s Bernie Madoff couldn’t have thrived without lack of caution in his victims. So, people should bank first on their own financial prudence.

The recent arrest of Sanjay Gupta- CFO of Hero company also raises questions like — is he one of the conspirators or is he the victim?

A money laundering angle is  also being probed into — the violation of the KYC norms (Know your Customer) implemented by the government of India, by many companies. Not registering “suspicious transactions above Rs. 10 Lakh” which should have been reported. There are many grounds on which these companies could file the Suspicious Transaction Report (STRs) but none did, so the money was easily diverted through many accounts — Puri’s wife, grandfather, grandmother. No one noticed?

The first thing that brokers would have known while opening Puri’s trading account was that he was a Citibank employee. If they know that, how did they allow him to open trading accounts and still let him trade as a portfolio manager? This is clear violation of the KYC norms.

Amidst these questions, the Gurgoan police is searching for an iPad that could provide critical evidence against Shivraj Puri. It is worth recalling Ravi Subramanian’s novel – If God was a Banker — in which he narrates an identical case involving a Relationship Manager of a foreign bank in India. She invested in mutual fund products without the customer’s mandate to earn hefty commissions. So now scams are being thought of from books, Indian police could use a little bit of help from that too then (Metaphorically speaking).