PROBE TARGETS CITIBANK SAFEGUARDS

Anti-Money-Laundering Procedures Ignored In Mid-1990s

Citigroup Inc. co-Chairman John Reed failed to take decisive action after
internal bank warnings for several years in the mid-1990s showed the bank
was ignoring its own safeguards against money laundering, Senate
investigators said yesterday.

The revelations about Reed's handling of the money-laundering issue
illustrate a broader problem faced by U.S. commercial banks as they try to
balance aggressive pursuit of new business against the possibility that
some clients may be using the bank to hide ill-gotten gains.

In 1995, Citibank became the subject of a Justice Department investigation
into the bank's relationship with Raul Salinas, the brother of the former
Mexican president, and as much as $100 million in alleged drug money the
bank secretly transferred on his behalf. The investigation is ongoing,
though sources say it has stalled for lack of definitive proof that the
money came from the sale of drugs.

Reed only began aggressive action in either late 1996 or earlier 1997,
after Robert B. Shapiro, the chairman of Monsanto Corp. and then the head
of the audit committee of Citicorp's board of directors, went to Reed and
told him he had to be more responsive to the audits and take swift action
to clean up the private banking unit, said investigators with the Senate's
Permanent Subcommittee on Investigations.

Money laundering is the process of taking money gained from illegal
activities, such as selling drugs, and sending it through a series of
financial transactions that make the money and its true owners hard to
trace and identify. Often these transactions are undertaken by bank
divisions known in the industry as private banking units, which cater to
rich individuals who wish to move money around in secret, often to avoid
taxes or other encounters with governments.

Next week, the Senate panel plans to explore the arcane world of private
banking and its relationship to criminal activity. As part of the hearings,
the subcommittee will release a 64-page report summarizing a year-long
investigation during which investigators examined tens of thousands of
Citigroup documents and interviewed dozens of private bankers in the
industry, as well as two dozen bank regulators from the Federal Reserve
Board and the unit of the U.S. Treasury that regulates banks.

"It's fair to say that John Reed was aware that Citibank's own internal
audits of its private banking operations showed that the private bank was
neglecting its internal controls and procedures, some of which were
designed to protect the bank against money laundering," said a top
investigator on the panel.

Reed, who will testify at the subcommittee's hearings, is expected to
acknowledge that the bank did not do a good job monitoring possible money
laundering in its private banking operations. "There is no question that in
the mid-1990s, the control environment in the private bank was not
satisfactory," according to a copy of Reed's prepared statement. "Our
internal audits showed this."

Moreover, Reed's statement says, "The internal auditors were candid and
specific in expressing their concerns. Senior management and the board's
audit committees took note and took action. Of course, the changes did not
occur overnight, and in retrospect one could take issue with whether they
happened fast enough."