Japan's financial regulator on Friday ordered Citigroup Inc.'s Japanese trust banking unit to halt all new operations from May 2, accusing the bank of illegally misleading inspectors with misinformation and violating accounting rules.
The Financial Services Agency's ruling against Cititrust and Banking Corp. was the latest reprimand for the largest U.S. financial institution, following the agency's decision in September to yank Citigroup's private-banking license and charge the company with legal violations.
The FSA action only hastens Citigroup's plans, announced last year, to close the trust bank by October.
The agency alleged that Cititrust and Banking had violated Japanese laws regulating the control, settlement and clearing of trust assets, employees' tax refunds, mutual fund sales and other transactions. It also accused top executives at the bank of misleading regulators during April-September 2000 inspections by withholding or falsifying information and failing to address problems — despite an order to reform its ways after a previous probe.
Though the alleged offense is serious enough to warrant the FSA's filing the criminal complaint to prosecutors, an agency official, speaking with reporters on condition of anonymity, said no such action was being considered.
In a statement, Cititrust apologized and said it will fully comply with FSA directives.
"Cititrust accepts the FSA's findings and apologizes for any inconvenience and concern that the problems at Cititrust may have caused its customers," it said.
FSA officials said the problems at Cititrust were related to those at Citibank's private-banking branches in Japan.
Last September, the agency accused the private bank, which manages the investments of wealthy individuals, of failing to implement safeguards against money laundering, misleading customers about financial risks, and other violations.
Citigroup has acknowledged that management at its private bank had "failed to establish a culture that ensured ongoing compliance with laws and regulations."
The trust banking unit handled product development for Citibank Japan's private banking operations. In November, Douglas Peterson, Citibank Japan's new chief executive apologized at a parliamentary committee and said 14 officers have been fired, including eight managing directors, for their dubious actions.
Earlier this month, the FSA ordered Credit Suisse Trust and Banking Co.'s affiliate in Japan to temporarily halt its new trust investment business, saying the bank's executives had neglected problems brought to their attention by internal auditors. The unit of Zurich-based Credit Suisse Group was accused of problems similar to those at Citigroup's units.