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Citibank, DB To Fight Possible ‘Criminal Cartel’ Charges In Australia

Citibank

Amid an ongoing investigation in Australian banks, insurers, financial service providers and pensions funds for everything from rate-rigging to mistreating customers and questionable consumer lending practices, two major global banks are now facing criminal charges in the country.

Prosecutors are now expected to lays “criminal cartel” charges against Citigroup, Deutsche Bank and the Australian Bank (ANZ) over a $1.9-billion share of ANZ’s stock, according to the Australian Competition & Consumer Commission (ACCC)

More specifically, the Commonwealth Director of Public Prosecutions is expected to charge the three banks and a number of individuals over “alleged cartel arrangements relating to trading in ANZ shares following an ANZ institutional share placement in August 2015”, ACCC chairman Rod Sims was quoted as saying.

ANZ group treasurer Rick Moscati is among the individuals expected to be charged, and it comes at an unfortunate time: He is slated to become ANZ’s chief risk officer. Australian media have speculated that a recorded video conference all with Citigroup and DB discussing the share sale.

ANZ said the charges related to the placement of 80.8 million shares, which were a subject of underwritten deal by global giants Deutsche Bank, Citigroup and JP Morgan as a part of a bid by ANZ to raise capital to meet tough new regulatory requirements that would have forced them to inject billions of dollars into their mortgage books and boost capital to “unquestionably strong” levels.

There is also unconfirmed speculation that JP Morgan may have been granted immunity from the alleged criminal cartel proceedings as the whistleblower.

The Australian Securities and Investments Commission is now investigating whether ANZ’s announcement should have explicitly stated that the joint lead managers took some 25.5 million shares of the placement, representing approximately 0.91% of total shares on issue at that time.

In other words, the underwriters ended up with almost $800 million in ANZ shares.

The three banks have announced plans to appeal the charges and deny any wrongdoing in the deal.

"The allegations involve an area of financial markets activity that has not been considered by any Australian court or addressed in any regulatory guidance notes previously published," Citigroup said in a statement. "Citi and its employees acted with integrity and without any bad intent in fulfilling the obligations of this underwriting agreement."

"The bank believes it and its staff acted responsibly and in a manner consistent with market rules," Deutsche Bank said.

ANZ also believes it "acted in accordance with the law" and intends to defend itself and treasurer Moscati.

ANZ expects the charges to be filed this week.

According to Australian media, the three companies could face a maximum penalty of 10 percent of annual turnover, or three times the benefit gained from “criminal cartel” behavior. Individuals could face up to 10 years in prison.

These are tough days for Australia’s banks, which are facing heightened scrutiny against the backdrop of mounting allegations of abuse.

On Monday, the Commonwealth Bank of Australia negotiated a A$700 million ($529.3 million) settlement of an anti-money laundering case against it brought by Australia's financial intelligence agency.

By Charles Benavidez

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