March 23, 2023

DealBook: Federal Reserve Faults Citigroup Over Money Laundering Controls

A Citibank branch in San Rafael, Calif.Justin Sullivan/Getty ImagesA Citibank branch in San Rafael, Calif.

The Federal Reserve hit Citigroup with an enforcement action on Tuesday over breakdowns in money laundering controls that threatened to allow tainted money to move through the United States.

The Federal Reserve, acting as a banking regulator, took aim at Citigroup and its subsidiary Banamex USA over failure to monitor cash transactions for potentially suspicious activity. Under the Bank Secrecy Act, financial institutions like banks and check-cashing services must report any cash transaction of more than $10,000 and bring any dubious activity to the attention of regulators.

The federal law also requires banks to have complex controls in place to detect any criminal activity. Porous monitoring, the authorities say, can enable drug dealers and terrorists to launder money through the United States.

Citigroup and Banamex USA, the American branch of its Mexican unit, did not admit wrongdoing, and no fines were issued Tuesday related to the lapses.

As part of a broad crackdown on the movement of illicit funds through the United States, the Justice Department and the Manhattan district attorney’s office has aimed at foreign banks that have branches on American soil. Prosecutors have accused several foreign banks of flouting United States law by funneling billions of dollars on behalf of sanctioned nations, like Iran and North Korea.

The Federal Reserve faulted Citigroup for lacking “effective systems of governance and internal controls to adequately oversee the activity.” Under the action, the bank’s board must outline a plan to fortify its monitoring of transactions and bolster its compliance program, including how to finance a “compliance risk management program that is commensurate with the compliance risk profile of the organization.”

The move by the Federal Reserve builds on a cease-and-desist order brought against the bank by the Office of the Comptroller of the Currency in April. In that order, the comptroller, Citigroup’s primary regulator, demanded that the bank improve its anti-money laundering controls. The comptroller accused the bank of violating the Bank Secrecy Act, a federal law that requires banks to rout out tainted cash by filing suspicious-activity reports.

“Citi has made substantial progress” in improving its compliance and addressing money laundering risks “in a comprehensive manner across products, business lines and geographies,” a bank spokeswoman said. “Citi continues to take the appropriate steps to address remaining requirements and build a strong and sustainable program.”

In December, HSBC agreed to a record $1.92 billion deal with authorities to settle accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.

For Citi, the action is the first anti-money laundering action since Michael O’Neill, the bank’s powerful chairman, abruptly deposed Vikram S. Pandit as chief executive last year and replaced him with Michael L. Corbat.

Under Mr. Pandit, Citigroup, which has a vast international footprint, worked to strengthen controls against dubious money moving through the bank, including by centralizing audit and compliance functions.

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DealBook: Ex-Goldman Programmer Is Arrested Again

John Marshall Mantel for The New York TimesSergey Aleynikov, left, with his lawyer, Kevin Marino, leaving the Manhattan Criminal Court on Thursday.

The legal odyssey of a former Goldman Sachs programmer, Sergey Aleynikov, took a surprising turn on Thursday when the Manhattan district attorney charged him with state crimes.

Mr. Aleynikov was charged in state court less than six months after a federal appeals court overturned his conviction on federal criminal charges that he stole secret source code from Goldman’s computers.

While the case involved a relatively low-level ex-employee at a financial firm, the government has taken a particularly hard line. The district attorney, Cyrus R. Vance Jr., and Preet Bharara, the United States attorney in Manhattan, have made the prosecution of corporate espionage and high-tech theft a top priority.

“This code is so highly confidential that it is known in the industry as the firm’s ‘secret sauce,’ ” Mr. Vance said Thursday in a statement. “Employees who exploit their access to sensitive information should expect to face criminal prosecution in New York State.”

The district attorney charged Mr. Aleynikov with the unlawful use of secret scientific material and duplication of computer-related material, both felonies under New York State law. If convicted, he could serve one to four years in prison.

Federal authorities arrested Mr. Aleynikov three years ago after Goldman reported him to the United States attorney in Manhattan. He was accused of stealing the bank’s highly confidential code for its high-frequency trading operations when he left the bank to join a start-up. A federal jury found him guilty in 2010, but an appeals court reversed his conviction, ruling that prosecutors misapplied the federal corporate espionage laws against him.

It is unusual for federal and state prosecutors to bring criminal charges against a defendant connected to the same set of facts. The Fifth Amendment of the Constitution prohibits double jeopardy, or being tried twice for the same crime, but the “dual sovereignty doctrine” permits different jurisdictions — in this case, the United States and New York State — to pursue charges for the same conduct. For instance, after a state jury cleared a group of Los Angeles police officers of misconduct in the beating of Rodney King, federal prosecutors brought civil rights charges against the officers and secured two guilty verdicts.

Under rare circumstances, however, federal and state prosecutors can be deemed in violation of the Fifth Amendment. A federal appeals court in Manhattan has ruled that single prosecutions by separate sovereign entities may still be an unconstitutional instance of double jeopardy when the prosecutors are acting in concert.

Joshua Dressler, a criminal law professor at Ohio State University, said that it was highly unlikely that the separate federal and state prosecutions in the Aleynikov case would violate the Constitution.

“It’s very rare that double jeopardy would come into play in a case like this,” said Mr. Dressler. “The Supreme Court decided this in 1922 and it’s been settled law ever since.”

Kevin H. Marino, Mr. Aleynikov’s lawyer, emphasized the double jeopardy issue during the arraignment. He accused the Manhattan district attorney’s office of acting as a tool of the Justice Department, saying the new prosecution thus violated the double jeopardy clause. He told Judge Robert M. Mandelbaum that his client was preparing to file malicious prosecution lawsuits against Goldman Sachs and the federal government.

Mr. Marino has always acknowledged that his client made a mistake in violating Goldman’s confidentiality rules, but continues to maintain that he did not commit any crime and that Goldman had suitable remedies in civil court.

Mr. Aleynikov, 42, was arraigned on Thursday afternoon at state criminal court in Lower Manhattan. Wearing a T-shirt, shorts and handcuffs, the bearded Mr. Aleynikov stood silently. Mr. Marino said his client was not guilty and asked the judge to release him on bail pending further proceedings.

Judge Mandelbaum ordered Mr. Aleynikov to forfeit his passports and released him on a $35,000 bond.

“If you’re Sergey Aleynikov you have to be thinking, ‘Why did I ever leave Russia?’ ” Mr. Marino said standing on the courthouse steps on Thursday beside his client, who emigrated to the United States two decades ago.

“But be that as it may, we look forward to vigorously defending him against these charges,” Mr. Marino said.

Some lawyers on Thursday said that they were not surprised that a second set of charges was brought against Mr. Aleynikov. They cited the interest of both Mr. Bharara and Mr. Vance in the area of intellectual property crime. And, because the federal appeals court ruled that the facts in this case did not fit the federal computer theft statutes, it made sense that the state prosecutor would use his own tools to charge Mr. Aleynikov.

“This is an exceptionally justifiable reason for the state prosecutor to use a state law to bring a prosecution,” said Mr. Dressler, the Ohio State professor.

Mr. Marino called the prosecution “fishy.” Standing on the state courthouse steps on Thursday just a few hundred yards from the federal courthouse where Mr. Aleynikov had been tried before, he accused the two offices of colluding against his client.

“It’s hard to imagine that it’s come to this,” said Mr. Marino. “Things don’t work out for the government in the federal case so you go around the corner and charge him in state court.”

After his conviction on federal charges, Mr. Aleynikov served one year of an eight-year sentence in a federal prison in Fort Dix, N.J.

“In prison you learn to appreciate your life day by day,” Mr. Aleynikov said after being set free earlier this year. “Today is a victory, but tomorrow you never know.”

This post has been revised to reflect the following correction:

Correction: August 10, 2012

An earlier version of this article misstated the position of the lawyer for Sergey Aleynikov. The lawyer, Kevin H. Marino has maintained that his client did not commit any crime. (The word “not” had been omitted in error.)

The earlier version also referred incorrectly to the federal charges brought against a group of Los Angeles police officers stemming from the beating of Rodney King. They were civil rights charges, not civil charges.

A version of this article appeared in print on 08/10/2012, on page B1 of the NewYork edition with the headline: Ex-Goldman Programmer Again Faces Theft Charge.

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Strauss-Kahn’s Lawyers Say He Won’t Plead Guilty

William W. Taylor III, who along with Benjamin Brafman is representing Mr. Strauss-Kahn, said late on Wednesday that they did not discuss a plea bargain in the sexual assault case against their client.

“Mr. Strauss-Kahn will not be pleading guilty to anything,” Mr. Taylor said.

In a sign of the deteriorating relationship between the Manhattan district attorney’s office and the woman who made the accusation, her lawyer sent a letter to the district attorney, Cyrus R. Vance Jr., requesting that he step aside and let a special prosecutor take over the case.

Mr. Vance promptly rejected the request. Prosecutors remove themselves only in extraordinary circumstances, generally when there is a personal stake in the outcome or a clear conflict of interest.

In the letter, the lawyer, Kenneth P. Thompson, said that Mr. Vance’s office had reached disturbing conclusions about his client based on a summary of a recorded phone conversation she had with a man in an immigration detention center.

Last week, prosecutors informed Mr. Thompson that the conversation raised “very troubling” questions about her credibility because she discussed the possible benefits of pursuing charges against a wealthy man.

But Mr. Thompson said on Wednesday that prosecutors had told him that they were basing their conclusions on “a digest of the conversation” rather than on the recording itself or a full transcript of it, which was in a dialect of the Fulani language of the woman’s native Guinea.

A law enforcement official, however, said on Wednesday that the recorded conversation between the woman and the man, who is accused of dealing drugs, was one of at least three in which she talked about the encounter with Mr. Strauss-Kahn and its aftermath. Investigators were continuing to review and analyze the conversations with Fulani interpreters, the official said.

In the letter, Mr. Thompson said that prosecutors had improperly maligned his client without access to the full conversation. He said they first described their understanding of the recorded conversation to him last Thursday, and then repeated it to The New York Times. Mr. Thompson cited The Times’s account of the conversation as one of several “damaging and prejudicial leaks” from prosecutors as part of the reason for requesting that Mr. Vance recuse himself.

The letter cited an e-mail that Mr. Thompson received on Tuesday from Mr. Vance’s chief assistant, Daniel R. Alonso, that read, “We at this point have only a digest of the conversation, so we need to have our interpreter prepare a complete transcript.”

Mr. Thompson said earlier this week that his client denied that she made the remarks that prosecutors have attributed to her. “She says it’s not true, that she didn’t say it,” Mr. Thompson said. “The way they’re describing the tape, she doesn’t agree with it.”

The law enforcement official said that after further translation and review, prosecutors were confident that the digest accurately reflected what she said.

The investigation has at points been hobbled by difficulties and delays in arranging for translators who were fluent in the dialect spoken by the woman, who accused Mr. Strauss-Kahn of sexually assaulting her when she went to clean his suite at the Sofitel New York on May 14.

Mr. Thompson, in an interview, said his client complained during one early interview session with prosecutors that the interpreter at that session was not rendering her words accurately. His client “stopped the guy, and says, ‘He’s not translating correctly, he’s not from my tribe,’ ” Mr. Thompson said. “Her tribe speaks a very unique dialect of Fulani.”

Erin M. Duggan, a spokeswoman for Mr. Vance’s office, said that the office had not received the letter from Mr. Thompson but that copies had been provided by reporters.

“We strongly disagree with how the office and the work of the assistant district attorneys have been characterized,” she said. “Any suggestion that this office should be recused is wholly without merit.”

Jim Dwyer and Colin Moynihan contributed reporting.

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DealBook: Goldman Receives Subpoena Over Financial Crisis

Goldman Sachs has received a subpoena from the office of the Manhattan District Attorney, which is investigating the investment bank’s role in the financial crisis, according to people with knowledge of the matter.

The inquiry stems from a 650-page Senate report from the Permanent Subcommittee on Investigations that indicated Goldman had misled clients and Congress about its practices related mortgage-linked securities.

Senator Carl Levin, the Democrat of Michigan, who headed up the Congressional inquiry, had sent his findings to the Justice Department to figure out whether executives broke the law. The agency said it is reviewing the report.

The subpoena come two weeks after lawyers for Goldman met with the Manhattan District Attorney’s office for an “exploratory” meeting about the Senate report, the people said.

“We don’t comment on specific regulatory or legal issues, but subpoenas are a normal part of the information request process and, of course, when we receive them we cooperate fully,” said a Goldman spokesperson.

The investment bank has not been accused of any wrongdoing. A subpoena is a request for information.

Bloomberg earlier reported news of the subpoena.

The subpoena is the latest blow to Goldman, which since the crisis has faced criticism that is shorted the mortgage before the collapse, making billions of dollars at the expense of its clients.

In early April, the Senate subcommittee published a scathing report, which took specific aim at Goldman. It notably highlighted testimony by the financial firm’s chief executive Lloyd Blankfein, who denied the firm was making large bets against residential mortgages while selling securities based on the home loans.

“We didn’t have a massive short against the housing market,” Mr. Blankfein testified at a Congressional hearing in 2010. It was a sentiment echoed in various public statements that year.

The Senate committee took a different view. The congressional report noted the phrase “net short” appeared more than 3,400 times in Goldman documents related to the mortgage market. It also quoted a letter from Goldman to the Securities and Exchange Commission, in which the firm said “we maintained a net short sub-prime position and therefore stood to benefit from declining prices in the mortgage market.”

Shares of Goldman slipped more than 2 percent on Thursday. The stock, which closed Wednesday at $136.17, was trading above $170 in early January.

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