An eight-year court case in Mexico involving the New York lender remains unresolved. And it could take another two years to reach a settlement.
US mega-lender Citigroup, as I reported last week, has decided to abandon its retail and business banking operations in Mexico. It will instead focus exclusively on the needs of its investment banking and private banking clients, just as it is doing in many emerging markets in Asia. But the New York lender appears to have hit a snag: at the end of last week, a Mexican judge presiding over an 8-year case involving Citi’s Mexican subsidiary, Citibanamex, and one of its former business clients, Mexican shipping company Oceanografia, blocked the sale of the subsidiary until the lawsuit is resolved. That, he said, could take up to two years.
“The precautionary measures requested by the plaintiff (Oceanografia) are decreed justifiable, as a result of which the defendant Banco Nacional de México, S.A. will be required to refrain from selling or transferring shares, assets and other tangible and intangible assets, until the main trial is resolved in a final judgement,” ruled Judge Mario Salgado Hernández in his resolution.
The judge, head of Mexico City’s 71st Civil Court, said that if Citi sells Banamex, payment of the amount demanded in the lawsuit must first be guaranteed before the Court. That amount is $5.2 billion (or its equivalent in national currency), which is a lot of money even for a bank of Citi’s size. To put the money in perspective, Citi reported 7.4 billion pesos (around $400 million) of net income from its Mexican operations in 2020, down from 20 billion pesos in 2019.
“They have announced their intentions to sell Banamex as of March of this year, so we have a justifiable fear that they will leave the country without complying with the obligations of the resolutions issued by the court,” said Jorge Betancourt, Oceanografia’s legal representative. “So, to prevent that from happening, we asked the court to block the sale of the bank until the trial is over or if they leave the amount we are requesting, $5.2 billion, in the form of a guarantee.”
After the judge announced the precautionary measure, Citibanamex said in a statement that “there are no legitimate legal foundations for the judge” to have taken such an action, “particularly given the baseless allegations contained in the lawsuit.” The bank plans to appeal the ruling, adding that it does not expect the matter “to have any impact on its timetable for selling our consumer business in Mexico.”
Accusations of Corruption, Influence Peddling and Money Laundering
The case against Oceanografia, launched in 2014, is one of the biggest corruption and influence peddling cases in recent Mexican history. It still hasn’t been resolved. The scandal came to light when senior management at both Citibanamex and the Mexican state-owned oil company Petróleos Mexicanos (Pemex) accused the shipping company of using a $585 million credit line provided by Citibanamex to obtain hundreds of millions of dollars in cash advances secured by fraudulent invoices purportedly for work performed for Pemex.
In February 2014, Pemex informed Citigroup that $400 million worth of Oceanografia invoices presented as approved by Pemex were forged. As a result, the bank cancelled the credit line, precipitating Oceanografia’s bankruptcy. The New York bank’s then CEO Michael Corbat called Oceanografia’s bogus billing a “despicable crime” — far in excess, of course, of any of the crimes Citi has committed over the years — and cut its fourth-quarter and full year results by about $235 million.
Oceanografia was closely connected to the PAN governments of Vicente Fox Quesada and Felipe Calderon Hinjosa (2000-2012) during whose tenure the petro-plunder of Pemex reached a whole new level. According to a report published in 2014 by the left-leaning investigative journalism magazine Contralinea, the company also had close ties to the brothers Francisco Javier and Óscar Rodríguez Borgio, owners of the company Grupo Gasolinera Mexicano, who were under investigation for oil theft and laundering money for organised crime.
Mexico’s Ministry of Public Function investigated the contracts Oceanografia signed with Pemex between 2011 and 2012, levied a fine of 24 million pesos and disqualified the company from working with federal public administration agencies for 21 months. Amado Yañez, who was CEO and majority owner of Oceanografia when the scandal broke in 2014, was arrested and jailed, only to be released in 2017 on the posting of a 7.5 million peso bail. Yañez still faces charges of fraud and wears an ankle bracelet to this day.
Continue reading the article on Naked Capitalism