Giant bank in massive fraud shocker

Citigroup subsidiary loses hundreds of millions on bad loans. The response? Cut chairman's pay to just $9.5 million

Published March 28, 2014 7:48PM (EDT)

   (AP/Nick Ut)
(AP/Nick Ut)

Unless you follow the financial news, you may not have heard about the massive fraud committed by Mexican oil services firm Oceanografia, abetted by the bank Banamex, a subsidiary of Citigroup. Oceanografia used falsified invoices as collateral for $400 million of the $585 million it borrowed from Banamex. The write-down forced Citigroup to reduce its reported 2013 profits by $235 million, and Citigroup is currently reviewing which of its employees helped enable the fraud. The FBI is investigating whether Banamex or its employees committed any crimes. With that scandal churning, Citigroup recently announced that it would cut the pay of the firm's co-president and Banamex chairman Manuel Medina-Mora, from $11 million to a mere $9.5 million. Self-regulation works!

Citigroup actually claims to have cut Medina-Mora's pay for "control issues unrelated to the fraud," according to Bloomberg's Dakin Campbell, Max Abelson and Ben Bain, who wrote a useful profile of the powerful executive. Mexico's top financiers are, like ours, deeply enmeshed with the country's political class. Friends of Medina-Mora -- friends who also happen to be most of Mexico's finance and government elite -- are deeply concerned that this scandal could hurt... Medina-Mora, who has long been terribly good at making money, making him fundamentally a good person and productive member of society.

“I hope it doesn’t taint him,” said Luis Tellez, head of Mexico’s stock exchange and a former energy minister under Zedillo. Tellez was also a guest at the wedding of Medina-Mora’s daughter. “I have benefited from having a professional relationship with him for such a long time,” he said.

Other guests at Medina-Mora's daughters wedding included "finance ministers to presidents Vicente Fox and Felipe Calderon" and "Agustin Carstens, governor of the country’s central bank." It sounds almost as lovely as Lloyd Blankfein's son's wedding!

Banamex is Mexico's second-largest lender, with more branches in Mexico than Citi has in the U.S.. Reports say that because Banamex, and Medina-Mora, made Citigroup so much money, they were allowed to operate with lax oversight and scrutiny from New York. Banamex is also under investigation for violating money laundering laws.

This week, the Federal Reserve told Citigroup that it had failed its annual "stress test," measures designed to see whether our mega-banks could survive another financial crisis. In the event of another crisis, Citigroup will either bring down the world economy or require a massive public bailout. Citigroup itself is the unstable and potentially dangerous behemoth it is today thanks to the tireless work of men like former Treasury Secretaries Bob Rubin and Lawrence Summers, who boldly pushed Congress and President Bill Clinton to deregulate the financial industry in the 1990s, and who both went on to make a ton of money working for Citigroup. None of the people involved in this story are in jail for some reason.

By Alex Pareene

Alex Pareene writes about politics for Salon and is the author of "The Rude Guide to Mitt." Email him at and follow him on Twitter @pareene

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Banamex Citigroup Finance Financial Crime Too Big To Fail