Citigroup fined over tax strategies

October 13, 2009|Associated Press

WASHINGTON - Citigroup Inc. has agreed to pay a $600,000 fine and to be censured to settle regulators’ charges it failed to supervise complex stock-trading strategies designed to reduce the bank’s tax bill.

The Financial Industry Regulatory Authority yesterday announced the civil fine against Citigroup Global Markets Inc. Citigroup did not admit to or deny the allegations. Citigroup failed to supervise and control trading and to prevent improper internal trades, as well as those with some trading partners, FINRA said. The transactions were from 2000 to 2005.

One of the strategies involved a Citigroup unit’s buying stock from foreign brokerage customers. After some time had elapsed, during which the taxable dividends were paid out, the stock was sold back to the customers, FINRA said. When dividends on US company shares are paid to foreign investors, they may be subject to US withholding taxes. Under the Citigroup arrangement, certain foreign customers received a “dividend equivalent’’ in a swap, not considered to be subject to withholding taxes.