Resisting Corporate Corruption, 3rd Edition

Case 5Too Big to Know What’s Going on at Banamex?

As Much as I hate to say it, it appears that even now—five years after a crisis in which the financial services industry shouldered its fair share of blame, there are still some people who don’t get it …” Michael Corbat, Citigroup CEO’¹

MICHAEL CORBAT, CEO OF CITIGROUP COULD ONLY SHAKE HIS HEAD. The news from Banamex, Citi’s large and highly profitable Mexican subsidiary kept getting worse. It was mid-April, 2014. A scandal had descended on Banamex in February. Over $500 million in Banamex loans to Oceanografía (accent over ‘i’), a local firm, turned out to be secured by fraudulent receivables from Pemex. The fraud knocked some $235 million off 2013 after-tax net income.²

Taking that hit had been the easy part. As Corbat looked into matters, a raft of bigger questions emerged. The first concerned the nature of the fraud. How had it happened that Banamex’ internal controls had failed to detect false invoices?

The second issue concerned the state of controls and ethics at the bank. If a major operation like Banamex could fail to detect something as basic as receivables fraud, what was the condition of controls elsewhere in the organization? Citibank had been stressing controls since the Financial Crisis. Indeed, Corbat gained the CEO position because of setbacks which convinced the Citi Board that Vikram Pandit, his predecessor, was not up to managing the bank’s sprawling operations. Corbat, a seasoned commercial banker, was promoted ...