Citigroup ordered to pay $600,000 FINRA fine for inadequate supervision that may have allowed foreign clients to avoid paying taxes on dividends

Citigroup, Inc. has agreed to pay a $600,000 Financial Industry Regulatory Authority fine to settle claims that its alleged inadequate supervision of certain derivative transactions between 2002 and 2005 allowed a number of foreign clients to avoid paying taxes on dividends.

The way this allegedly worked is that during a period of dividend payments, the customer would sell stock to Citigroup. The bank would pay the client an income equal to the dividend. It would also pay any share price increase.

FINRA is accusing Citigroup of failing to control trades and failing to prevent improper trades, both internally and with trading partners. The dividend equivalent that certain foreign Citigroup clients obtained was not considered subject to withholding taxes. Citigroup’s strategy was allegedly intended to lower its tax bill.

By agreeing to pay the $600,000 fine, Citigroup is not admitting to or denying the allegations.

The US Senate has created an inquiry into accusations that certain Wall Street firms manipulated derivatives and stock-loans so that clients could avoid hundreds of millions of dollars in taxes. The Financial Times is reporting this amount to be in the billions of US dollars.

The Senate’s Permanent Subcommittee on Investigations says that Citibank paid the IRS $24 million over the allegations and worked to give the agency full disclosure.

Throughout the US, our stockbroker fraud lawyers represent institutional and individual investors who have sustained financial losses because of broker-dealer fraud or other misconduct.

Related Web Resources:
Citigroup slapped with $600,000 fine from FINRA, American Banking News, October 13, 2009
Citigroup fined over tax strategies, Boston.com, October 13, 2009
Citigroup agrees to pay fine, Kansas City, October 12, 2009