The Reserve Bank has imposed a penalty of Rs 25 lakh on US-based Citibank for not following account opening and anti-money laundering norms at its Gurgaon branch, which witnessed a fraud of Rs 461 crore last year.
"The failure in following the Know-Your Customer (KYC)/Anti-Money Laundering (AML) guidelines while opening accounts led to the perpetration of a fraud at its Gurgaon branch," the central bank said.
Several depositors and high-net worth individuals (HNIs) were duped in the Rs 460.91 crore fraud, engineered by a Citibank's Global Wealth Manager Shivraj Puri who was working at Gurgaon branch of the bank.
Following investigations, the RBI came to the conclusion "that the violations (at Gurgaon branch of Citibank) were substantiated and warranted imposition of the penalty".
No immediate comments could be obtained from Citibank. The RBI had earlier issued a show cause notice to the bank in April and heard the bank officials on the issue last month.
The Haryana police has filed chargesheet against the fraud accused and capital market regulator Sebi too probed the matter as the fraud money was invested in the stock market.
As per a Sebi report, mastermind of Citibank fraud Shivraj Puri took an exposure of whopping Rs 1.13 lakh crore in the equity market using Rs 236 crore of 51 high net worth individuals and corporates and lost everything following decline in stock markets. The government had earlier said the fraud in the Gurgaon branch was going on since September 2009, but major transactions only took place between May 2010 and November 2010.
US-based Citibank is headed by India-born Vikram Pandit.
Citibank's manager Puri perpetrated the fraud by mobilising funds worth Rs 460.91 crore in an unauthorised manner from High Networth Individual (NHI) customers and certain companies for the purpose of investing in stock market.
Puri fabricated a circular of the Sebi to lure people into investing into accounts held by his accomplices Premnath, Shiela Premnath and Deeksha Puri. The fraud came to light after the bank looked into a query from a customer at Citibank's Nehru Place branch about its scheme offering high returns.
After discovering the fraud, the Citibank on December 5, 2010, filed a complaint with the Gurgaon police, which is investigating the case.
Recently, financial frauds have come to light at Citigroup's operations in the US and Indonesia.
In the US, a former top executive of Citigroup has been charged for allegedly siphoning off more than $19 million from the bank, the latest in a string of frauds that have come to light at the global banking giant.
Going by reports, in Indonesia earlier this year, a Citigroup official was slapped with charges of embezzling millions of dollars from rich clients.
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