Citibank Faulted Over Alleged Mexican Drug Money

By Anthony Boadle

Friday December 4, 6:21 pm Eastern Time

WASHINGTON, Dec 4 (Reuters) - A U.S. congressional report published on Friday faulted Citibank for helping the brother of a former Mexican president secretly funnel $100 million in alleged drug money out of Mexico and into Swiss bank accounts.

The General Accounting Office, the investigative arm of Congress, concluded that Citibank, the second largest bank in the United States, ignored its own safeguards against money-laundering and failed to verify the source of the money.

The GAO did not find that Citibank, a unit of the banking and insurance giant Citigroup Inc, broke any law.

The GAO said Citibank set up a shell investment company in the Cayman Islands and accounts in London and Switzerland that helped the ex-president's brother, Raul Salinas, quietly transfer $90 million to 100 million between 1992 and 1994.

Swiss authorities in October confiscated $114 million that Salinas had stashed in Swiss accounts, saying the funds were protection money paid by Colombian and Mexican drug barons.

U.S. Congressional investigators found that Citibank did not run a financial background check on Salinas and allowed his wife to use another name when she wired funds from Mexico City to New York.

``Citibank ... facilitated a money-managing system that disguised the origin, destination and beneficial owner of the funds involved,'' the congressional investigators concluded.

Only after Salinas was arrested and jailed in Mexico on murder charges in 1995 did Citibank do a brief financial profile on him, but failed to mention the Cayman Islands shell corporation and gave no source for his wealth other than an unnamed construction company, the GAO said.

The report said Citibank never knew the company's name, who bought it or how much money the sale generated.

The report said Citibank only acted after Switzerland arrested Salinas' wife, Paulina Castanon, on money laundering and drug trafficking charges in November 1995 while she was trying to withdraw funds from a Swiss bank.

Citibank reported the suspicious transactions to federal authorities at that time, but still failed to mention the shell company or the European accounts it had set up for Salinas, purportedly because no official U.S. documentation existed, the GAO said.

Citibank used three additional shell companies to further insulate Salinas' connection to the Cayman Islands trust called Trocca, the report said.

Following his arrest, Citibank officials contacted his wife in Mexico and advised her to move all funds associated with Trocca out of the bank, the congressional report said.

Raul Salinas is the older brother of Carlos Salinas de Gortari, who was president of Mexico from 1988 to 1994 and who now lives disgraced in self-imposed exile in Ireland.

Salinas is still in jail on charges of masterminding the 1994 murder of a top ruling-party official. But a Mexican judge last month dropped one charge of illegal enrichment against him, saying there was insufficient evidence.

Salinas has denied that his fortune was ill-gotten, saying he received the money from rich Mexicans for the establishment of an overseas investment fund.

The GAO report detailed how Salinas' wife periodically withdrew funds from at least five Mexican banks, hand-carried cashier checks to Citibank Mexico and wired the money to Citibank New York under the name of Patricia Rios.

The funds were then wired to accounts in London and Switzerland, the report said.

Citibank said in a statement that the GAO investigation did not conclude that the bank had broken any laws.

The bank said the report contained ``errors of fact and interpretation,'' but declined to specify due to an ongoing investigation in the United States.

The GAO report is expected to prod the Justice Department to speed up its three-year probe into whether Citibank broke money laundering laws in handling the Salinas money.

U.S. prosecutors would have to prove that the money came from an unlawful source if they are to make a case against Salinas or Citibank for money-laundering.