CITIBANK FRAUD

Presented by :

ABHAS SURJAN ATULESH KUMAR PRASHANT RANJAN RITIKA SHARMA SANYAM K GUPTA SUNIL BASANTANI

Introduction
Fraud is any dishonest act and behaviour by which one person gains or intends to gain advantage over another person. Fraud causes loss to the victim directly or indirectly. Fraud has not been described or discussed clearly in The Indian Penal Code but sections dealing with cheating. concealment, forgery counterfeiting and breach of trust has been discusses which leads to the act of fraud. This banking fraud can be classified as: Fraud by insiders Fraud by others

Fraud by insiders
y Rogue traders y Fraudulent loans y Wire fraud y Forged or fraudulent documents

Uninsured deposits y Theft of identity y Demand draft fraud

Fraud By Others
y y y y y y y y y

Forgery and altered cheques Stolen cheques Accounting fraud Bill discounting fraud Cheque kiting Credit card fraud Duplication or skimming of card information Phishing and Internet fraud Money laundering

Citibank
Citibank is the largest foreign direct investor in financial services in India with a total capital commitment of approximately US$ 4 Billion in its onshore banking and financial services business and its principal and alternate investment programs. It operates 42 full-service Citibank branches in 30 cities and over 700 ATMs across the country. The case is about a fraud committed by its relationship manager Shivraj Puri, who duped customers into depositing Rs. 300 crore in accounts set up by him making them believe they were investing in a scheme the bank was offering.

Highlights
y There were around 78 accounts were involved along with hero honda y Funds were transferred to Mr. Puris wife, other relatives account and

y y y

some benami (fictitious accounts). Mr. Shivraj Puri used Religare and Bonanza brokerage firms for investing the money in stock market There is the use of forged documents to fool customers. It highlights the danger in the fashionable view that a customer must only have one point of contact with a company. In an investment climate where outperforming the pack is extremely difficult, any scheme that promises extraordinary returns warrants close scrutiny On a more general level, this fraud highlights the fact that in the desire for growth, a large number of conventional risk mitigants are often obeyed only in letter and not in spirit. Regulators need to know that customer policies are in place, suspicious transactions are being reported, and the like

Analysis
y Impact on Profits: As per the audited financial statements as on

March 2010the net profit of Citibank India was Rs. 860 crore (USD 192 million). If Citibank has to absorb the loss of the fraud and payback to the clients, its profitability for the year will be impacted negatively. y Segregation of Duty: The RM of citibank as per the details available on Citi website is a one point contact with the Bank. The Relationship Manager is backed by a team of experts in the fields of investments, insurance, treasury and foreign exchange services. There appears to be lack of controls and supervision on the activities of the Relationship Manager. From the looks of it, the Relationship Manager is selling the investment concept, obtaining funds, investing them and monitoring the accounts. This shows that there is no segregation of duty for the different functions.

y KYC :In this case, funds from Citi customer accounts were

being diverted to accounts in Citi (for example, Mr. Puris relatives or other fictitious accounts) then there should have been checks in place to question the business validity of the transactions. On the other hand, the brokerage firms, Religare and Bonanza should have questioned the source of funds of Mr. Puri as he is a salaried employee. Although, they are stating that KYC procedures were followed

y Suspicious Transaction Monitoring: According to RBI

and SEBI guidelines, a bank is required to have systems in place to monitor suspicious transactions and there is special emphasis on high net-worth investors (HNI). For HNI the nature of activity of the customer should be monitored by the bank and suspicious transactions reported to RBI if money laundering is suspected. In this case, questions can be raised on the nature of systems and procedures in place to monitor suspicious transactions. SEBI and RBI could raise questions on the accuracy and validity of suspicious transactions monitoring reports submitted by the bank

y Functioning of Risk Management

Departments: RBI guidelines specify that banks should have proper fraud monitoring, compliance and risk management functions. The responsibility for establishing and maintaining the fraud risk function rests with the CEO. In this case, the fraud was perpetuated over a few months (specific dates not available) and the fraud department was alerted by the customer complaints. This raises questions on fraud detection and monitoring procedures implemented at the bank.

CONCLUSION
y Investor should not place undue reliance on their managers. y The banks should not let any relationship manager single

handedly manage customer relationship. y Involving other people in the system would help in generating Warning signals of the Fraud. y There is a requirement of proper regulatory framework to regulate the wealth management industry.