Government - Governance Problems in

Government - Governance Problems in Citigroup Japan GOVERNANCE PROBLEMS in CITIGROUP JAPAN In the past few years, several topics within the private banking industry in Japan have emerged as a pressing concern for citizens, financial services firms and employees, and government officials alike. This paper will analyze the governance problems faced by Citigroup Japan, and will provide a brief overview of the private banking industry, and the specific issues faced by Citigroup Japan, and will conclude with a discussion of the firm's strategic options.

The general environment dimensions that are most relevant in this case include such aspects as the depth and breadth of the span of Citigroup's business in Japan. Citigroup was one of the most diverse financial service providers in Japan, with a total of 850 offices boasting a staff of 9,000 employees in Japan. Citigroup Japan was a primary competitor in the financial services industry, and operated in brokerage, commercial, private, retail, investment banking, credit cards, asset management, and consumer finance and insurance businesses.

Private banking is commonly associated with the characteristics and activities such as priding reliable, honest information to customers regarding features and potential financial risks in respect to bonds, and other financial services. There are also many regulations and laws for firms to follow, such as conducting regular internal audits and not misusing any customer funds. The factors that are critical for the success of the firm given the competitive environment are having an aggressive approach to lending, trading and making money.

The firm must adopt new technology and products before competitors capture the local market. The primary issue in this case was that Citigroup Japan had been deviating from established regulations set in place for the financial services industry, and failed to conduct an internal audit or establish internal control mechanisms. Citigroup Japan also lost backup files containing 123,690 customer statement files that included deposits, foreign currency savings deposits, and certificates of deposit, loans, mutual funds and customer personal information.

Loan funds were misused, individual sales activities were not monitored, and employees were not trained so that they would have a full understanding of all the regulations. The primary areas of concern of the FSA were different types of acts that would be injurious to the public interest, serious violations of law and regulations, and extremely inappropriate actions in the private banking unit.

The main area of concern was that the private banking unit had amassed large profits illegally by allowing money laundering transactions, in which customers were mislead in various private bond deals and were sold securities and derivatives at an unfair price without being informed of the risks. Another issue of concern was that Citigroup had similar problems of non-compliance with regulations that had been reported in different countries, and that Citigroup in general had no disregard for a country's regulations.

The firms strategic options were to close the private banking unit in Japan, and launch a clean-up program that included firing certain high-level employees that were accountable for the scandal, and appoint a new CEO that would be responsible for renewing customer confidence. Additionally, a new integrated structure for control functions was implemented, in which each control function would be run under a unified management in Japan. Citigroup also.