MAY 7, 2011
By JOKO HARIYANTO And ERIC BELLMAN
JAKARTA, Indonesia—Indonesia's central bank banned Citigroup Inc. from opening new branches for one year and imposed other sanctions following its investigations into the alleged embezzlement of millions of dollars by a Citi employee and the suspicious death of a Citibank borrower.
Bank Indonesia on Friday also said it may revoke Citi's license to do business in Indonesia if its probe of the bank turns up further problems.
JAKARTA, Indonesia—Indonesia's central bank banned Citigroup Inc. from opening new branches for one year and imposed other sanctions following its investigations into the alleged embezzlement of millions of dollars by a Citi employee and the suspicious death of a Citibank borrower.
Bank Indonesia on Friday also said it may revoke Citi's license to do business in Indonesia if its probe of the bank turns up further problems.
Customers at a Jakarta, Indonesia, branch, one of 21 Citibank
outlets in the Asian nation.
The bank also specified the duration of bans on the bank from certain new business. The bank will be barred from issuing new credit cards for two years and recruiting new wealth-management clients to its Citigold service for one year. The central bank had announced these bans last month but not the length.
The central bank also said it imposed an offshore travel ban on some of the unit's executives while investigations continue.
The sanctions represent a significant blow to one of the largest foreign banks operating in Southeast Asia's biggest economy. Citi, which has been expanding into Indonesia's banking market, has 4,000 employees, 21 bank branches and 71 consumer-finance offices there. Its Indonesian revenue is an estimated $300 million.
"Bank Indonesia has found the bank violated its own internal procedures, as well as weaknesses in its implementation of risk management," Bank Indonesia Deputy Gov. Budi Rochadi said at a news conference Friday. The central bank didn't provide any other details of what it had discovered through its investigation.
In a statement from its New York headquarters, Citigroup said it is "committed to working closely with Bank Indonesia and taking the actions necessary to satisfy their concerns," and "will continue to implement the appropriate corrective actions in consultation with our regulator." A Citigroup spokesman in New York declined to comment on the threat to revoke its license.
"We have already taken steps to strengthen our internal control processes," said Ditta Amahorseya, director of corporate affairs for Citigroup's Indonesian operations.
The crackdown on Citi illustrates the risks of expansion into emerging markets, where there may be less control over far-flung branches, analysts said. More than 60% of the revenue and 70% of profits at Citicorp's core banking operations come from abroad.
"Citi definitely is seeing its reputation being tarnished," said Bret Ginesky, Jakarta-based banking analyst for CLSA. He said he expects the restrictions will slow Citi's expansion and drive customers to other banks.
Last month, Citi said it had hired more than 1,400 debt-collection staff in Indonesia after the country's central bank criticized it for outsourcing that function. Bank Indonesia said Friday that Citi wouldn't be allowed to outsource its debt collection services for two years.
A string of bad news started for Citi back in February, when the central bank and police launched probes into Citi's operations after the bank alerted regulators to suspicious transactions conducted by relationship manager Inong Malinda Dee. The manager was detained on March 23 and charged with stealing at least 17 billion rupiah ($2 million) from clients after obtaining signed blank checks from them.
In April, police launched an investigation into the death of a Citi client who died after meeting with debt collectors hired by Citi. The circumstances surrounding the death of Irzen Octa, the secretary-general of the National Unity Party, one of Indonesia's minor political parties, remain unclear. Some police at the time said his body showed signs of injury.
Citi said an internal investigation into the matter found no evidence of violence against the customer.
Last week, the central bank asked more than 20 other banks to stop accepting new wealth-management clients for a month as it reviewed how these accounts were being used.
—I-Made Sentana and Randall Smith contributed to this article.
The central bank also said it imposed an offshore travel ban on some of the unit's executives while investigations continue.
The sanctions represent a significant blow to one of the largest foreign banks operating in Southeast Asia's biggest economy. Citi, which has been expanding into Indonesia's banking market, has 4,000 employees, 21 bank branches and 71 consumer-finance offices there. Its Indonesian revenue is an estimated $300 million.
"Bank Indonesia has found the bank violated its own internal procedures, as well as weaknesses in its implementation of risk management," Bank Indonesia Deputy Gov. Budi Rochadi said at a news conference Friday. The central bank didn't provide any other details of what it had discovered through its investigation.
In a statement from its New York headquarters, Citigroup said it is "committed to working closely with Bank Indonesia and taking the actions necessary to satisfy their concerns," and "will continue to implement the appropriate corrective actions in consultation with our regulator." A Citigroup spokesman in New York declined to comment on the threat to revoke its license.
"We have already taken steps to strengthen our internal control processes," said Ditta Amahorseya, director of corporate affairs for Citigroup's Indonesian operations.
The crackdown on Citi illustrates the risks of expansion into emerging markets, where there may be less control over far-flung branches, analysts said. More than 60% of the revenue and 70% of profits at Citicorp's core banking operations come from abroad.
"Citi definitely is seeing its reputation being tarnished," said Bret Ginesky, Jakarta-based banking analyst for CLSA. He said he expects the restrictions will slow Citi's expansion and drive customers to other banks.
Last month, Citi said it had hired more than 1,400 debt-collection staff in Indonesia after the country's central bank criticized it for outsourcing that function. Bank Indonesia said Friday that Citi wouldn't be allowed to outsource its debt collection services for two years.
A string of bad news started for Citi back in February, when the central bank and police launched probes into Citi's operations after the bank alerted regulators to suspicious transactions conducted by relationship manager Inong Malinda Dee. The manager was detained on March 23 and charged with stealing at least 17 billion rupiah ($2 million) from clients after obtaining signed blank checks from them.
In April, police launched an investigation into the death of a Citi client who died after meeting with debt collectors hired by Citi. The circumstances surrounding the death of Irzen Octa, the secretary-general of the National Unity Party, one of Indonesia's minor political parties, remain unclear. Some police at the time said his body showed signs of injury.
Citi said an internal investigation into the matter found no evidence of violence against the customer.
Last week, the central bank asked more than 20 other banks to stop accepting new wealth-management clients for a month as it reviewed how these accounts were being used.
—I-Made Sentana and Randall Smith contributed to this article.
Write to Eric Bellman at eric.bellman@wsj.com
