Citibank NZ cops a formal Reserve Bank warning under the AML/CFT Act over 64,000 international wire transfers

The Reserve Bank has issued a formal anti-money laundering warning to Citibank saying it failed to provide originator information, obtained through its capacity as an intermediary bank from about 64,000 international wire transfers, to beneficiary institutions.

Providing originator information is required by the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act). This requirement, the Reserve Bank says, aims to ensure the identification of the originator of a ‘wire transfer,' a transaction carried out by electronic means, and provision of that information throughout the payment chain.

The obligation exists to hinder the anonymous use of wire transfers by money launderers and financiers of terrorism, the Reserve Bank says. The transactions took place between January 2017 and July 2020, and between November 2021 and April 2022. 

Citibank describes itself as New Zealand’s preeminent banking partner for corporate, investor and public sector clients with cross-border needs. It has been a banking service provider to the NZ Government since 2015. Its contract was renewed in July for four more years, after a Ministry of Business, Innovation and Employment all-of-government tender for banking services, and extended to include online merchant acquiring, alongside providing corporate card and foreign exchange payment services.

"The failures stemmed from Citibank NZ’s control deficiencies and failure to adequately apply and test control measures relating to automated payment rules which, for around 64,000 affected transfers, failed to pass on the true identity of the originators. This meant the banks ultimately receiving those funds were unable to see their true origin," Reserve Bank Director of Enforcement and Resolution Kerry Beaumont says.

"This formal warning to Citibank NZ highlights the importance of payment transparency where there are multiple parties involved in a payment chain and the importance of systems assurance to test systems on an ongoing basis before issues become systemic," adds Beaumont.

"The wire transfer identity requirements are important to mitigate the ML/TF risks posed by international wire transfers. It is vital that all parties involved in wire transfers accurately pass on the originator information they obtain. Citibank NZ did not do so for the affected transfers."

The Reserve Bank says Citibank's failures weren't a deliberate attempt to evade AML/CFT Act obligations, and related to complex legal obligations.

"Upon being alerted to the issues, Citibank NZ self-reported the matter, addressed the root causes and has cooperated with the Reserve Bank throughout the investigation," says Beaumont.

A Citibank spokeswoman says; "Citi understands the crucial role it plays in New Zealand’s financial system.  We promptly self-reported the issue to the Reserve Bank of New Zealand and worked with them to enhance our controls and processes."

Given Citibank's failures have implications for the beneficiary banks of the affected transfers from a prescribed transaction reporting compliance perspective, the Reserve Bank says it'll contact affected reporting entities and the wider sector.

"Prescribed transaction reporting, while complex, provides a rich source of financial intelligence to deter money laundering."

The formal warning has been issued to Citibank N.A. New Zealand Branch. It has been a registered NZ bank since 1987, having provided financial services here since 1974, and has a 2.19% stake in Payments NZ, the company that governs NZ's core payment systems. 

 The Reserve Bank says public censure is the only penalty Citibank faces.