ILLEGITIMATE INVESTMENT PRODUCTS

Citibank is probing a multi-million dollar fraud allegedly perpetrated by employees at its Gurgaon branch in India who are suspected of selling investment products to clients, according to an article published in The Economic Times. The employees, claiming they were authorized by the bank’s investment product committee, are said to have used forged bank documents and letterheads to defraud clients and siphon funds raised from the sale of the investment products into their personal bank accounts. The Times asserts that a senior official in the consumer banking division may have accidentally discovered the fraud when talking to a client who recently purchased an investment product from the bank. A Citibank spokesperson said the matter had been reported to regulatory and law enforcement authorities.

Lessons Learned

This situation illustrates that internal auditors, when conducting a fraud risk assessment, should consider all possible fraud risks. In this case, the fraud risk was not attractive inventory, assets, or money — it was bank clients. Bank employees allegedly used their access to high net worth clients to perpetrate the scheme. Access to the contact and personal information of these clients should have been carefully protected and monitored. Furthermore, these clients should have been made aware of the full range of bank products and services. These preventive actions would have reduced the ability of the fraudsters to identify high net worth clients and exploit them with fake bank investment products.

Once again, we are reminded that frauds often are discovered by accident. However, this situation highlights the importance of taking time to plan a detailed investigation and inform the appropriate authorities. It also is important for organizations to take steps to reduce reputational risk by informing their clients of the fraud as well as actions the organization is taking to identify the fraudsters and protect its clients.


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