Japan suspends Citi sales promotions
Regulators say the U.S. bank does not have enough systems in place to detect suspicious transactions.
TOKYO (Reuters) -- Japan ordered Citigroup to suspend sale promotions for a month at its retail bank for lax oversight against money laundering, in the struggling U.S. bank's second brush with Japanese regulators in five years.
The Financial Services Agency said Citigroup (C, Fortune 500) had not developed adequate systems to detect suspicious transactions such as money laundering, citing the same violation that led the regulators to close its private banking business in 2004.
Citigroup, which has 35 branches and generates about $2 billion in revenue a year from its retail and corporate banking division, Citibank Japan, apologized for the breach, saying it stemmed from the way it reported suspicious transactions.
"If Citibank cannot get its house in order, its operations in Japan may come under threat," said Neil Katkov, head of Asia research for financial services consultancy Celent.
"We have seen banks in the U.S. shut down for alleged loose money laundering compliance, and this is a sign that Japanese regulators are getting tougher."
The suspension comes as Citigroup tries to sell assets in Japan, an integral part of its efforts to raise cash after suffering more than $85 billion in losses on toxic assets and receiving a U.S. government bailout.
The bank agreed last month to sell its Japanese brokerage and investment banking assets to Sumitomo Mitsui Financial Group, Japan's third-largest bank, for about $5.9 billion.
It is also looking to sell its Japanese asset management arm, Nikko Asset Management, and telemarketer Bellsystem24 Inc, sources have told Reuters. The deals are expected to raise more than $1 billion each.
The FSA said Citigroup had not made improvements since the last regulatory crackdown in 2004, which prompted then-chief executive Charles Prince to make a public bow of apology in Japan, a custom for Japanese executives showing remorse.
The FSA said the lack of compliance showed Citigroup executives "... lack an understanding of the rules applied in Japan, such as laws and regulations, and an awareness of improvement".
Citibank Japan, which handles retail and corporate banking operations, had 299 billion yen in net assets and 1,548 employees as of the end of March, according to its web site.
Citibank Japan promised to submit a plan to the Japanese regulator by the end of July to remedy the problems.
While Citibank Japan cannot promote its retail products for the next month, customers can still initiate transactions with the bank, the FSA and Citigroup said in statements. 
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