Citigroup is currently under investigation by several U.S. federal agencies, including the Department of Justice (DOJ), the Federal Bureau of Investigation (FBI), and the Internal Revenue Service (IRS). The investigation focuses on Citigroup’s role in managing the assets of Suleiman Abusaidovich Kerimov, a Russian oligarch closely tied to President Vladimir Putin, and his Heritage Trust, which holds substantial U.S.-based assets. The scrutiny highlights concerns over how wealthy Russian individuals use financial institutions to safeguard assets in foreign jurisdictions and potentially circumvent sanctions.

Kerimov, a prominent figure in the Russian gold mining industry, has been under U.S. sanctions since 2018, primarily due to his connections with the Russian government. This article explores the key aspects of the Citigroup investigation, the broader implications for financial institutions involved with sanctioned individuals, and the efforts of U.S. authorities to combat money laundering and financial crimes in the wake of Russia’s ongoing geopolitical tensions.

Citigroup’s Role in Heritage Trust and the Ongoing Investigation

At the heart of the investigation is Citigroup’s involvement with Heritage Trust, a financial entity established to manage Kerimov’s U.S. assets. Heritage Trust reportedly held around $1 billion as of June 2022, and Citigroup has been providing services to the trust, including wealth planning and asset management. However, since the U.S. Treasury Department imposed sanctions on Kerimov, Citigroup is prohibited from administering the trust in its usual manner. This restriction limits the bank’s ability to handle the assets or make any distributions, as the funds are now effectively frozen.

In response to the investigation, Citigroup issued a statement reiterating its commitment to compliance with all applicable laws and regulations. The bank also noted that it is in the process of winding down its business interests in Russia, having ceased most of its operations in the country, with the exception of those deemed necessary to fulfill legal and regulatory obligations.

For further details, see the U.S. Treasury Department’s statement regarding sanctions enforcement on Russian officials.

The Treasury Department’s Block on Kerimov’s Assets

The U.S. government’s actions against Kerimov’s assets highlight a broader effort to disrupt the financial activities of Russian oligarchs and entities that are believed to be linked to Putin’s government. The Treasury Department’s decision to block Kerimov’s access to his Heritage Trust account stems from concerns over his use of complex financial structures to evade sanctions and conceal the true ownership of his U.S. investments. This includes using a network of shell companies and intermediaries to obscure his control over the assets, a tactic commonly associated with money laundering.

The blocking of Kerimov’s assets also follows the DOJ’s seizure of a superyacht allegedly owned by the oligarch. The yacht, which was reportedly purchased with funds derived from illegal activities, was targeted as part of the U.S. government’s broader sanctions enforcement strategy. You can read more about the DOJ’s actions on asset seizure here.

Citigroup’s Financial Compliance Framework Under Scrutiny

As the investigation unfolds, questions are also being raised about Citigroup’s internal controls, specifically its anti-money laundering (AML) procedures and client-vetting mechanisms. The DOJ, FBI, and IRS are examining whether the bank adequately ensured that Kerimov and his representatives were not using the trust structure to funnel illicit funds. The effectiveness of Citigroup’s financial compliance framework is central to the investigation, particularly given the allegations of financial crimes such as money laundering and conspiracy.

Citi has faced regulatory challenges in recent years related to its compliance systems. In July 2023, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve fined the bank for its inadequate risk management practices, which had been flagged in multiple consent orders over the past four years. Citigroup’s leadership, under CEO Jane Fraser, has since committed to improving its compliance processes and addressing data management concerns, though critics argue that progress has been slow.

The Broader Context: U.S. Government’s Crackdown on Russian Oligarchs

The Citigroup investigation is part of a larger, coordinated effort by the U.S. government to target the financial networks that allow Russian oligarchs to circumvent sanctions and continue benefiting from their vast wealth. Following Russia’s invasion of Ukraine in 2022, the U.S. intensified its scrutiny of Russian financial operations, forming a task force to investigate and prosecute individuals who are believed to be supporting the Russian government or facilitating illicit financial activities.

The U.S. government’s efforts are not limited to Citigroup and its trust operations. Agencies such as the DOJ, FBI, and IRS are expanding their probes into various financial institutions, law firms, and other service providers that may have assisted Russian oligarchs in concealing assets and evading sanctions. This crackdown is part of a broader strategy to hold individuals accountable for their roles in undermining global security and stability.

Citigroup’s Trust Business and its Sale to JTC

Citigroup has long offered trust and wealth management services to high-net-worth individuals through its private banking division. However, the investigation into the Heritage Trust account is casting a shadow over the bank’s trust operations. Citigroup announced plans to sell its entire trust unit to JTC, a financial services firm based in Jersey, in a deal valued at $80 million. The sale is part of Citi’s strategy to refocus its business and exit non-core operations.

The timing of the sale is notable, as it comes amid the growing regulatory pressure on Citigroup related to its handling of sanctions and compliance issues. JTC, which has been expanding its presence in the U.S. market, will likely face its own set of regulatory hurdles as it assumes control of Citi’s trust business, particularly given the scrutiny surrounding accounts like Heritage Trust. For more about the financial services market, see this article on JTC’s recent acquisition.

The Role of Shell Companies and Financial Structures in Sanctions Evasion

One of the most troubling aspects of the Kerimov investigation is the use of shell companies and other opaque legal structures to conceal the ownership and control of assets. These types of financial vehicles are commonly employed by individuals seeking to evade sanctions, launder money, or hide illicit wealth. The U.S. government has been working to expose these complex networks and hold those responsible accountable.

Andrea Gacki, director of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), has been outspoken about the need to dismantle these financial structures. She has emphasized that shell companies, limited liability companies (LLCs), and other layered entities are often used by sanctioned individuals to obscure their true ownership and prevent authorities from tracing their assets.

For financial institutions like Citigroup, the challenge is not only to comply with AML regulations but also to identify and report suspicious activities that may indicate potential sanctions violations. Given the sophisticated methods used to launder money, financial institutions must invest heavily in technology and training to stay ahead of evolving tactics used by bad actors. You can read more about shell companies and financial evasion in this FinCEN report.

Conclusion: The Ongoing Fight Against Money Laundering and Financial Crime

The investigation into Citigroup’s involvement with Suleiman Kerimov’s Heritage Trust is emblematic of the larger global effort to clamp down on financial crimes and ensure that sanctions are effectively enforced. As the U.S. government continues to investigate the complex web of financial transactions and shell companies linked to Russian oligarchs, the role of financial institutions in maintaining compliance with AML laws will be under increasing scrutiny.

Citigroup’s response to the investigation, as well as the broader regulatory actions against Russian oligarchs, will have significant implications for the future of international banking and the fight against money laundering. As governments around the world take a harder stance on illicit financial flows, financial institutions must remain vigilant and proactive in their efforts to comply with evolving regulations and protect the integrity of the global financial system.

Source: Barron’s