(Provisional Translation)
September 17, 2004
Financial Services Agency

The administrative action against Citibank, N.A. Japan Branch

    The Securities and Exchange Surveillance Commission (SESC) conducted the inspection of Japan Branch of Citibank, N.A. and found the following violations of the Securities and Exchange Law (''the Law'' hereafter). The SESC recommended the Commissioner of the Financial Services Agency (FSA) to take a disciplinary action against Japan Branch of Citibank, N.A. on September 14, 2004open new window.

1. Facts found by the inspection of the Securities and Exchange Surveillance Commission

(1)     Act of making representation of a misleading statement on any material matter in connection with handling of private placement of securities
    Two vice presidents in Marunouchi Branch of Citibank, N.A., in the course of private banking business, on June 4, July 4 and August 28, 2003, made representation of misleading statements on material matters to several customers in solicitation materials with regard to the nature of structured bonds they offered through private placements.
    The acts above are found to be ''the act of making representation of a misleading statement on any material matter in connection with handling of private placement of securities'' stipulated in the Article 21(i) of the Ordinance of Cabinet Office concerning Securities Businesses of Financial Institutions, and thus to have violated the Article 42 (1)(ix) of the Law as applied by the Article 65-2 (5) of the Law.
 
(Case One)
    Vice President A of the Marunouchi Branch, on June 4 and August 28, 2003, made representation of a misleading statement in soliciting structured bonds to two customers, as if the customers could sell out the bond at a certain price anytime before the maturity date, while it was in fact difficult to do so because of the low level liquidity.
(CaseTwo)
    Vice President B of the Marunouchi Branch, on July 4, 2003, made representation of a misleading statement in soliciting structured bonds to a customer, as if the customer could receive interests certainly without risking the principal, while there were in fact possibilities of impairing the principal as well as not being able to receive interests because of the fluctuation of exchange rate.
(2)     Act of handling private placement as a condition of granting credit
    Marunouchi Branch of the Citibank N.A., in the course of the private banking business, in April 2003, made solicitation to offer the acquisition of structured bonds to a particular customer at the same time when it proposed a loan to the same customer to be appropriated for the cost of purchasing the bonds and other financial needs; provision of such a loan was subject to the purchase of the bonds.
    The act above is found to be ''the act of handling private placement as a condition of granting credit'' stipulated in the Article 21(vi) of the Ordinance of Cabinet Office concerning Securities Businesses of Financial Institutions, and thus to have violated the Article 42 (1)(ix) of the Law as applied by the Article 65-2 (5) of the Law.
 
(Case)
    An employee of the Marunouchi Branch, in April 2003, solicited the offer of acquiring structured bonds to a customer, and at the same time proposed an increase of the amount of a loan to be appropriated for the cost of purchasing the bonds to the same customer who had needed a loan for his business in a foreign country; provision of such a loan was subject to the purchase of the bonds.

2. The administrative action against Japan Branch of Citibank, N.A.

    On the basis of the above findings, the FSA took the following administrative actions to Japan Branch of Citibank, N.A. today.

(1) Business Improvement Orders
 
i) Strengthening the internal control
ii) Taking preventive measures against recurrence of the above-mentioned violation and clarifying locus of responsibility
iii) Strengthening the compliance function
iv) Revising and rebuilding comprehensively the system for securing the implementation of proper investment solicitations (including strengthening of the examination system of solicitation materials).
(2) Submitting the Business Improvement Plan to the FSA by October 22, 2004 and implementing it immediately.
(3) Reporting a progress in the implementation of the Business Improvement Plan to the FSA on a quarterly basis, from the end of December 2004 until the full implementation of the plan; reporting shall be made by the 15th day after each quarter.

For further information, please contact the following :

Securities Business Division
Supervisory Bureau
FSA, JAPAN (Tel:03-3506-6000)
Deputy Director:Masafumi SUGIBAYASHI(ex.3353)
Section Chief:Makiko HORI (ex.3364)