July 21, 2014 / 5:18 AM / 4 years ago

Citi’s Banamex, regulator clash over who played key role in loan fraud

MEXICO CITY/NEW YORK (Reuters) - Preliminary findings of a probe by Citigroup’s Mexican unit, Banamex, into how it lost more than $500 million in a corporate loan fraud differ markedly from the results of a separate investigation by the Mexican banking regulator.

A man walks in front of a Banamex advertisement in Mexico City February 28, 2014. REUTERS/Edgard Garrido

Banamex has zeroed in on Jose Ortega, a middle manager the bank fired in 2012, as a key person in the fraud involving Mexican oil pipeline maintenance company Oceanografia, according to two people familiar with its probe.

But the Mexican bank regulator, Comision Nacional Bancaria y de Valores (CNBV), has poured scorn on this suggestion and says Ortega probably played only a bit part. The real problem was with the bank’s institutional failure to have proper controls in place, the CNBV says.

Reuters has learned that Banamex accuses Ortega of changing a manual that employees used when deciding whether to make loans to suppliers to Mexico’s state-owned oil company Pemex. That meant Banamex staff stopped calling Pemex to verify invoices, reducing their level of scrutiny of loans to Oceanografia and other suppliers, the people familiar with the probe said.

Because Citigroup has different lending protocols for different types of borrowers, employees are expected to follow steps in manuals to safely make loans to clients. Ortega, who was in charge of lending to companies that supply services to Pemex, was the only employee at his level entitled to edit the Pemex manuals, the two sources familiar with the bank probe said.  Reuters couldn’t independently verify whether or not Ortega had altered the manuals.

The bank fired Ortega in 2012 for having an outside business relationship with Oceanografia, creating a conflict of interest, because it discovered he had received $200,000 from the company’s CEO Amado Yanez, one of the sources said. Reuters could not ascertain what the arrangement was between Ortega and Oceanografia.

Ortega told investigators at the time that the payments were for his wife, a fine art dealer who had sold art and property to Yanez, the source said. Ortega went to work for Oceanografia as a consultant after being fired by Banamex, the source added.

Ortega could not be reached for comment. One lawyer said he has been in touch with Ortega, adding that the former Banamex employee has not selected legal representation. That lawyer said he passed along Reuters’ request for comment but Ortega did not respond.

The name of Ortega’s wife could not be determined, and Reuters was unable to reach her to seek comment.

Citigroup’s New York-based spokesman Mark Costiglio declined to comment.

Calls to Oceanografia’s headquarters rang to an outgoing message. Calls to Pemex were not returned.


Citigroup executives have not accused Ortega of acting alone. And it is unclear whether the preliminary findings of the on-the-ground investigation in Mexico will end up in any Citigroup report on the fraud.

Citigroup this year has fired about a dozen staff members who either were directly involved or failed to stop the alleged fraud. One of the fired employees allegedly spirited away key documents early in the bank’s internal probe, according to two sources familiar with the matter. Citigroup CEO Michael Corbat said in a memo in May that he expected more employees to be disciplined.

But the people familiar with the Banamex investigation told Reuters the Mexican bank believes the Oceanografia losses would not have been possible if not for the actions that they attribute to Ortega.

That is not the view of the regulator. In a report that Reuters has reviewed, the CNBV said its own investigation found that Banamex failed to follow internal protocols that hadn’t been changed. That failure was the main problem, and not material changes to the procedures, the 77-page report said. The CNBV sent its report to Mexico’s attorney general’s office.

“They (Banamex executives) should have been more effective, and if they had been, they would have found these problems beforehand,” said Jaime Gonzalez, president of the CNBV, in an interview with Reuters.

In the CNBV report, Ortega is not accused of wrongdoing. He is barely mentioned.

“Think about what a brilliant guy Ortega is,” Gonzalez said as he questioned the idea that Ortega was some kind of rocket scientist behind the fraud. “He deceived everyone from Banamex, he changed the way of operating ... and no one realizes. He goes to Oceanografia, and keeps doing the same thing. He is a brilliant guy who should be at NASA,” Gonzalez joked, referring to the U.S. space agency.

Gonzalez said the Banamex protocol was changed to allow Oceanografia to borrow against estimates of payments from Pemex, instead of being based on invoices approved by the state oil company. But the procedure that required Banamex staff to call the state oil giant to check the documents was still in place – the problem was employees did not follow it, he said.

Oceanografia collapsed in February, around the time that Citigroup said Oceanografia had defrauded Banamex of $400 million, a figure that later rose to more than $500 million. The Mexican government has taken over Oceanografia’s affairs.

Oceanografia CEO Yanez was arrested in June on charges of fraud and is currently out on bail, awaiting trial. A lawyer identified as representing Yanez by Mexican media did not respond to calls from Reuters seeking comment. 

Reporting by Elinor Comlay and Alexandra Alper in Mexico City and David Henry in New York; Editing by Dan Wilchins and Martin Howell

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