The SEC says Banamex had sub-standard internal controls over the accounts receivable factoring program used by OSA. Banamex lacked the controls necessary to test the authenticity of the factored documents prior to advancing funds to OSA and recording them as accounts receivable. The SEC also says the banking subsidiary also lacked controls sufficient to identify and respond to “red flags that arose during the relationship between Banamex and OSA potentially warning Banamex of the ongoing fraud.”Citigroup recorded losses from the fraud in 2013 ($360 million) and 2014 ($113 million).
The bank agreed to pay a $4.75 million penalty to settle the SEC’s charges. It did so without admitting or denying the SEC’s findings and agreed to cease and desist from future violations. After the fraud was discovered in 2014, Banamex fired as many as 11 former employees.