Citi’s Hurried Exit From Mexico Just Hit a $5 Billion Snag

An eight-year court case in Mexico involving the New York lender remains unresolved. And it could take another two years to reach a settlement.

US mega-lender Citigroup, as I reported last week, has decided to abandon its retail and business banking operations in Mexico. It will instead focus exclusively on the needs of its investment banking and private banking clients, just as it is doing in many emerging markets in Asia. But the New York lender appears to have hit a snag: at the end of last week, a Mexican judge presiding over an 8-year case involving Citi’s Mexican subsidiary, Citibanamex, and one of its former business clients, Mexican shipping company Oceanografia, blocked the sale of the subsidiary until the lawsuit is resolved. That, he said, could take up to two years.

“The precautionary measures requested by the plaintiff (Oceanografia) are decreed justifiable, as a result of which the defendant Banco Nacional de México, S.A. will be required to refrain from selling or transferring shares, assets and other tangible and intangible assets, until the main trial is resolved in a final judgement,” ruled Judge Mario Salgado Hernández in his resolution.

The judge, head of Mexico City’s 71st Civil Court,  said that if Citi sells Banamex, payment of the amount demanded in the lawsuit must first be guaranteed before the Court. That amount is  $5.2 billion (or its equivalent in national currency), which is a lot of money even for a bank of Citi’s size. To put the money in perspective, Citi reported 7.4 billion pesos (around $400 million) of net income from its Mexican operations in 2020, down from 20 billion pesos in 2019.

“They have announced their intentions to sell Banamex as of March of this year, so we have a justifiable fear that they will leave the country without complying with the obligations of the resolutions issued by the court,” said Jorge Betancourt, Oceanografia’s legal representative. “So, to prevent that from happening, we asked the court to block the sale of the bank until the trial is over or if they leave the amount we are requesting, $5.2 billion, in the form of a guarantee.”

After the judge announced the precautionary measure, Citibanamex said in a statement that “there are no legitimate legal foundations for the judge” to have taken such an action, “particularly given the baseless allegations contained in the lawsuit.” The bank plans to appeal the ruling, adding that it does not expect the matter “to have any impact on its timetable for selling our consumer business in Mexico.”

Accusations of Corruption, Influence Peddling and Money Laundering

The case against Oceanografia, launched in 2014, is one of the biggest corruption and influence peddling cases in recent Mexican history. It still hasn’t been resolved. The scandal came to light when senior management at both Citibanamex and the Mexican state-owned oil company Petróleos Mexicanos (Pemex) accused the shipping company of using a $585 million credit line provided by Citibanamex to obtain hundreds of millions of dollars in cash advances secured by fraudulent invoices purportedly for work performed for Pemex.

In February 2014, Pemex informed Citigroup that $400 million worth of Oceanografia invoices presented as approved by Pemex were forged. As a result, the bank cancelled the credit line, precipitating Oceanografia’s bankruptcy. The New York bank’s then CEO Michael Corbat called Oceanografia’s bogus billing a “despicable crime” — far in excess, of course, of any of the crimes Citi has committed over the years — and cut its fourth-quarter and full year results by about $235 million.

Oceanografia was closely connected to the PAN governments of Vicente Fox Quesada and Felipe Calderon Hinjosa (2000-2012) during whose tenure the petro-plunder of Pemex reached a whole new level. According to a report published in 2014 by the left-leaning investigative journalism magazine Contralinea, the company also had close ties to the brothers Francisco Javier and Óscar Rodríguez Borgio, owners of the company Grupo Gasolinera Mexicano, who were under investigation for oil theft and laundering money for organised crime.

Mexico’s Ministry of Public Function investigated the contracts Oceanografia signed with Pemex between 2011 and 2012, levied a fine of 24 million pesos and disqualified the company from working with federal public administration agencies for 21 months. Amado Yañez, who was CEO and majority owner of Oceanografia when the scandal broke in 2014, was arrested and jailed, only to be released in 2017 on the posting of a 7.5 million peso bail. Yañez still faces charges of fraud and wears an ankle bracelet to this day.

Yañez claims he is a victim of a plot by businessmen and politicians determined to take possession of his company, founded by his father in 1968. Before the scandal broke it was one of the largest shipping companies in Latin America with 11,000 employees, 100 vessels and 42 active contracts with Pemex. In 2013, the Peña Nieto government was on the verge of passing its long-awaited energy reforms, which were about to open up huge opportunities for companies and investors in Mexico’s oil and gas sector, including in shipping.

During that same year Yáñez Osuna was allegedly pressured to leave Oceanografia in foreign hands. A trio of businessmen — Aaron Omar Olvera Monroy, a lawyer connected to Pemex’s former CEO Emilio Lozoya, both now in prison on corruption charges, Fabián Narváez Tovar, director of the Mexican shipping company Administradores Navieros del Golfo, and Arturo Herníquez Autrey, a former Pemex executive who is also under investigation for corruption and money laundering — approached him with a derisory offer he ended up rejecting. Yañez assumes they were doing Lozoya’s bidding.

One of Mexico’s richest and most connected families, the Hank Rhon, also made an offer for Oceanografia that Yañez ended up turning down. Not long after the two rejections, Pemex and Citibanamex accused Oceanografia of fraudulent billing.

No Smoking Gun

Eight years later, Citibanamex has still not been able to demonstrate in a court of law that Oceanografia committed fraud against it. In March 2017, Oceanografia, now out of bankruptcy, filed a counterclaim against Citibank in Manhattan federal court, as the Courthouse News Service reported at the time:

“Citibanamex committed bank fraud in Mexico and, on information and belief, in the United States when it recorded loans to Oceanografía as the purchase of rights to collect on invoices owed by the Mexican national oil company, Petróleos Mexicanos (commonly known as Pemex),” the complaint says. (Parentheses in original.)

The loan description allowed the bank to book the loans at an AAA rating and lend more than it otherwise would have to Oceanografia directly. Citibank allegedly made millions more in profits using this scheme.

“When outside circumstances made it impossible for Citibanamex or Citigroup to continue to conceal Citibanamex’s bank fraud, Citigroup publicly took over the relevant operations from Citibanamex and conducted a purported investigation into Citibanamex’s loans to Oceanografía,” Oceanografia claims.

The lawsuit continues, “Rather than take responsibility for Citibanamex’s misconduct, however, Citigroup chose to portray itself as victim and whistleblower. That plan, however, required a scapegoat – Oceanografía.”

In 2018, Mexico’s Supreme Court dismissed Citibanamex’s lawsuit against Oceanografia preventing the New York lender from collecting more than 6,7 billion pesos in damages. The judicial body dismissed two appeals from Citibanamex, describing them as unfounded since the bank could not legally verify factoring operations by Oceanografia. In response Citibanamex asserted that the ruling did not alter the fact that it had suffered from fraud.

“[The ruling] is independent of the criminal trial currently under way against Amado Yáñez Osuna. Citibanamex trusts that the law will be applied correctly for the resolution of any related legal issues. ”

More Questions Than Answers

Yañez has since launched a counterclaim against Citibanamex for up to $5.2 billion in damages. According to El Economista, Oceanografia is estimated to have suffered losses of approximately 30 billion pesos ($1.45 billion) as a result of the operations related to Banamex alone, without considering the damages suffered due to the lack of operations and fulfilment of the contracts that it had signed with Pemex, as well as the obligations the company has to its other creditors, mainly foreign investors, shipowners and international ship operators.

This group has also taken legal action against Banamex for damages caused eight years ago. They have also threatened to launch fresh lawsuits, which could further hamper Citi’s exit from Mexico.

In the meantime, expectations are rising that Lozoya, currently in jail, will end up ratting out his ex-bosses, Mexico’s former President Enrique Peña Nieto and former Treasury Secretary Luis Videgaray Caso, both of whom are accused of orchestrating and operating a network of bribes worth at least $10 million dollars. The money was allegedly distributed among high-level operators in the PRI election campaign of 2012, when Peña Nieto was elected, and opposition legislators to encourage them to approve the energy reform of the following year.

Sources close to Lozoya claim he is also willing to testify that the actions taken against Oceanografia were part of a plot cooked up by the former Secretary of the Treasury to acquire what was then the most important shipping company in the country. If true, what role did Citibanamex play? Was it a victim or an accomplice, or both? Did it knowingly participate in a plot to bankrupt one of its own clients? If so, what kind of price will it end up paying, if any? After all, Citi is a TBTF Wall Street bank and this is Mexico we’re talking about. In 2021, Mexico’s antitrust watchdog imposed fines totalling a measly 35 million pesos ($1.75 million) on seven international banks, including Citibanamex, for rigging government bond prices.

At the moment, there are far more questions than there are answers. Loose ends are all over the place. But one thing is clear: the case between Oceanografia and Citibanamex will go on. And that is the last thing Citi wants.


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  1. The Rev Kev

    Excuse the schadenfreude but it couldn’t happen to a nicer corporation. And I suspect that this will not be a situation where if they pay the appropriate bribes, that they get to go without their assets hanging out. Of course they might make the argument that if they are allowed to just get rid of the assets that they want to get rid of, that they promise to sort out that trial later on. But I do not think that that argument will fly in Mexico as they are not stupid enough to take such promises seriously. Washington DC maybe, but not Mexico. I’m not even sure that the Mexican Congress of the Union even has a Parliamentarian to help out here. But Nick’s description of the whole situation makes me pessimistic that it will be only two years to sort out, especially since it has been running for eight years already. Citigroup might goose up some US Senators to lobby on their behalf but what could they offer Mexico to let Citigroup go? I’d tack on a coupla more years for it to sort itself out.

  2. Joe Well

    Quite the financial and geopolitical thriller!

    OK, I didn’t completely understand why would anyone acquire Banamex with that case still active? Because the new owners would inherit any legal issues, right? So why require a $5 billion guarantee at all? Or is the fear that they will gin up a buyer that will be guaranteed to go bankrupt?

    And have the US or Mexican media reported yet that Mexico’s unspeakably Trump-like corrupt leftist president is behind this persecution of Citibank?

    1. Nick Corbishley Post author

      Not sure if I’d describe AMLO as either “unspeakably Trump-like” (though they share certain traits, there are far more differences) or “corrupt”. In fact, one of the main reasons why he was voted into power and still has pretty high approval ratings is that he is not perceived as corrupt, unlike many of his predecessors. That’s not to say that many of the people around him aren’t corrupt.

      As for your other question, Joe, I have not come across any articles in the US or Mexico that have specifically linked this development to AMLO. As I reported in last week’s article, he has said he would like Banamex, whose name is short for Banco Nacional de Mexico, to pass back into Mexican ownership, but he has also stressed on more than one occasion that his government would not intervene in the sale.

      1. Joe Well

        That was sarcasm re: AMLO. That is how the NYTimes, at least, has consistently portrayed him even during the elections, when he was either Mexican Trump or Mexican Bernie Sanders and they weren’t sure which was worse.

        I thought the combination of “leftist” and “Trump” made it obvious if it wasn’t already. My apologies.

        My question was as to why a sale of Banamex is even possible with the suit pending. Who would buy?

        1. Nick Corbishley Post author

          Well, as things now stand a sale isn’t possible. But you’re right, it was somewhat bizarre that Citi thought it would just be able to walk out of the country before the trial’s resolution, with $5 billion hanging in the air. And nobody in the country’s press or government thought to mention the issue until Judge Salgado Hernández intervened.

          Apologies for not detecting the /sarc. Normally I’m pretty good at that sort of thing.

          1. Susan the other

            I’d like to see info on Oceanografia’s trade circuits. Any back and forth from Baluchistan?

    2. T_Reg

      “unspeakably Trump-like corrupt leftist” and “persecution of Citibank” both have the distinct odor of a certain intestinal gas. I LLOLed.

  3. ambrit

    It smells very much like earlier cases of big banks getting involved in international money laundeing. Several banks took a fall back then, but the Mexican judges seemed to have learned the lesson from those episodes; Banks are legal criminal organizations, and must be treated as such.
    I wonder just what a 5.2 billion USD “guarantee” would look like. That’s one H— of an escrow account.

      1. ambrit

        Hmmm… Crime does pay, and handsomely.
        Time to dig out my DVD of “Garden of Evil” for a refresher course in Mexican – American relations?
        Stay safe!

  4. Mick

    Maybe they’ll decide that the Ukrainian border isn’t so important after all?

    “Mexico to end oil exports in 2023 in bid to meet its own fuel needs”

    Definitely going to be something “spooky” going on in Mexico to forestall this.

    Mexico is looking more and more like a relatively to U.S. decent bugout country to go to when the SHTF toward the end of the Harris interregnum disaster and civil insurrection.

    1. Joe Well

      >>Mexico is looking more and more like a relatively to U.S. decent bugout country to go to when the SHTF toward the end of the Harris interregnum disaster and civil insurrection.

      Now I’m not sure if my sarcasm meter is working. Mexico has more civil insurrections than avocados.

      1. ambrit

        Yeah, but a lot of the Mexican “capitol riots” are leftist in nature.
        If America devolves into several smaller polities, will Mexico follow suit?
        I mean, there’s a reason why Trotsky ended up in Mexico City.

  5. Skip

    A 1978 novel by Carlos Fuentes, The Hydra Head, called the shots for these intrigues. I won’t try and describe the plot, but Pemex figures in.

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