Wikileaks Documents: China Muzzled Citibank’s Growth

Steven Bobson, Europe & Americas Editor
February 09, 2011 /

Seeing the foreign firm’s strength a threat to its local companies, Chinese regulators have tried to control the growth of Citibank in China through a “hostile” and “extraordinarily intrusive” review conducted by 40 Chinese auditors in 2007 into the books of the bank, according to Wikileaks documents quoting a top executive of the firm.

The Wikileaks documents revealed that there was a “knowledge transfer” that occurred following the 2007 audit as disclosed by Richard Stanley, the bank’s country head at the time, to US officials. Stanley was quoted by the Wikileaks documents as saying the China Banking Regulatory Commission (CBRC) wanted to know how Citibank was working in order to control the bank from further growing.

Stanley died in 2009 from leukemia.

The Chinese auditors were sent to Citibank six months after the subsidiary in Shang Hai was opened, the Wikileaks documents stated.

China has been known for its efforts to regulate thriving foreign-owned investment firms in the country for fear that they may become stronger than its own entities, and Citigroup Incorporated, which owns the Citibank, has been one of the largest lenders in the country since 1902. Citibank currently has 34 outlets in China.

In the Wikileaks documents, Stanley was quoted as telling Alan Holmer, the then-U.S. special envoy at Treasury for China, and Federal Reserve System Governor Kevin Warsh, that Citibank was “not in an opening-up period” with respect to China’s financial sector.

Commenting on the supposed statements of the deceased Stanley, a spokeswoman said “the alleged statements in no way reflect Citigroup’s view of its regulatory relationships in China.”

She said the Citibank had a “constructive relationship” with Chinese regulators.

The Wikileaks documents have been originally reported by Reuters which reviewed the 250,000 U.S. diplomatic cables, opening new insights into the performance of auditors within firms.

December 9 last year, inAudit reported about the Wikileaks documents showing the pressure that the Russian government has exerted on PwC to disavow its “clean opinion” audits in the Yukos Oil. What supported the allegation were the reported raids on PwC office in Russia and threats to recall Russian audit license of PwC.

Although PwC admitted it has signed off Yukos’s financial statements from 1994 to 2003, and disavowed all opinions in June 2007, the audit firm said the move had nothing to do with any coercion from the Russian government and is made due to discovery of new facts, which required them to withdraw their audit opinions.

Added to that, the Wikileaks documents concerning auditors included KPMG’s sceptical reaction to the Queen’s opening speech in Parliament on November 18, 2009, where Her Majesty had set out one of the priorities for new legislative session – to develop a new Financial Services Bill, requiring form systemically important banks to establish plans for recovery and resolution, that ensure banks’ financial continuity, later called by journalists ‘living wills’.

Banks cautioned, that legislation would create advantages for other financial centers outside ofUK.

Wikileaks documents quoted KPMG as saying the “idea of a living will, while attractive as a concept, would not be easy in practice since bank structures have developed over 20-30 years and are extremely complex,” which is rather more diplomatic.

But these revelations from Wikileaks documents were already known to the public, and so the Big Four audit firms were not surprised at all.


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