We run risk of employee fraud: Citibank disclaimer

It may be a routine 'risk factor' disclaimer, but global giant Citibank has acknowledged that it runs the risk of possible fraud by its employees and internal controls may not always be effective.

The Indian arm of the US-based banking major is currently at the centre of a Rs 400 crore fraud allegedly perpetrated by a relationship manager at the Gurgaon branch of the bank.

"There have also been a number of highly publicised cases involving fraud or other misconduct by employees in the financial services industry in recent years and Citigroup runs the risk that employee misconduct could occur," reads the 'Risk Factors' disclosure by the group.

The disclosure is a part of the last annual account report filed by Citigroup with US market regulator SEC, while the same was also referred to in the last quarterly report filing made in late 2010.

Such 'risk factor' disclosure filings are made as a routine practice by all listed companies with the US regulator to inform investors about the potential risks they face and has no direct relation to the fraud in India.

"It is not always possible to deter or prevent employee misconduct and the extensive precautions Citigroup takes to prevent and detect this activity may not be effective in all cases," the filing said further.

A multi-pronged probe involving the police, banking regulator RBI and capital markets watchdog Sebi is currently underway in the fraud case involving Citibank employee Shivraj Puri.

One of the victims has even named Citibank's global chief Vikram Pandit and other senior executives in his complaint, but the bank said claims against its senior officials were baseless and it would vigorously defend them.

The fraud apparently came to the light after the bank received complaints from a customer that had invested in a scheme floated by Puri promising high returns. Subsequently, the bank lodged a complaint with the police and also informed RBI and Sebi about the fraud.

The police has estimated the size of the fraud at Rs 400 crore and said Puri diverted funds of companies and individuals into an account jointly held by his relatives and friends.