Citigroup's Japanese trust bank, which will be shuttered because of a private-banking scandal last year, has been ordered to stop accepting new business after regulators found it had obstructed inspections and engaged in improper deals, according to Reuters.
The Financial Services Agency (FSA) said the unit, Cititrust and Banking Corp., sold mutual funds when it was not qualified to do so and lied to inspectors about the practice.
It also said the bank helped clients manipulate accounting records through improper real estate transactions, failed to process tax refunds for clients and mismanaged confidential customer information.
The bank did not correct its problems in spite of an FSA warning in 2001. As a result, the agency forbade the bank from soliciting new business indefinitely from May 2, but said the order may be lifted in order to allow it to shut down as planned.
"As a technical matter, a bank can't just close down while it's subject to an administrative punishment," an FSA official said.
The penalty is the FSA's second against a foreign trust bank this month. Earlier this month, the agency ordered Credit Suisse Group's Japanese trust unit to stop seeking new business for a month for sharing confidential customer information with affiliates and failing to process tax refunds for clients.
Citigroup said it planned to transfer clients out of the entity within a year.
"Cititrust accepts the FSA's findings and apologizes for any inconvenience and concern that the problems at Cititrust may have caused its customers," the bank said in a statement.
The FSA said it would rescind its penalty if Cititrust identified employees responsible for problem transactions and submitted a report on its steps to tighten internal controls.