B

ank Indonesia (BI) announced Friday it was imposing severe sanctions on Citibank following a massive embezzlement scandal by a bank employee and the suspected death of a customer at the hands of debt collectors recently.

The bank possibly faces other sanctions if found guilty of the two crimes by a court.

Central bank deputy governor Budi Rochadi said Citibank was barred from issuing credit cards to new customers for two years. The bank has also been prohibited from signing up new customers for its premium wealth service for one year.

BI also ordered Citibank not to use third-party debt collectors for two years and has banned the bank from opening new branch offices until next year, Budi said.

“The sanctions take effect as of May 6, 2011. If heavier violations are uncovered in the following days, further sanctions will be reviewed,” Budi said at a news conference at his office in Jakarta.

He said the most serious penalty that could be imposed — revoking Citibank’s operating license in Indonesia — could be meted out if further investigations uncovered more serious anomalies and crimes.

BI has also slapped managerial sanctions in the form of fit-and-proper tests on Citibank executives linked to the cases. The bank also instructed bank executives not to leave Indonesia until all tests were completed.

Fit-and-proper tests are conducted on bankers to determine their capability in running banks. If they do not pass the tests, they are not allowed to carry out their duties in the country.

“The fit-and-proper tests start next week and will be completed in 40 days, hopefully sooner,” Budi said.

“BI has asked Citibank headquarters in New York to evaluate internal controls at Citibank Jakarta,” he added.

Citibank last month announced the discovery of suspicious transactions worth millions of dollars in its Citigold operation under the services of senior relationship manager Inong Malinda Dee, who was arrested. Police indicate that more suspects, including bank insiders, were likely to be arrested.

Following the scandal, BI last week instructed 23 banks to stop signing up new customers for their priority banking businesses for a month starting May 2. BI said it would punish any banks violating national banking regulations.

Not long after the embezzlement scandal, Citibank credit card customer Irzen Octa died soon after meeting debt collectors at a Citibank branch in Jakarta. Octa reportedly complained about his inflated credit card bill and was allegedly assaulted by the debt collectors. The bank has denied any wrongdoing and pledged to fully cooperate with police investigations.

When asked about actual and potential losses Citibank could suffer as a result of the imposed sanctions, the bank’s country corporate affairs head, Ditta Amarhoseya, said Citibank was still “reviewing the sanctions issued by BI, and it would be premature to speculate on the potential impact to our business”.

“We are committed to working closely with Bank Indonesia and taking the actions necessary to satisfy their concerns. We have already taken steps to strengthen our internal control processes. We will continue to implement the appropriate corrective actions in consultation with our regulator,” Ditta told The Jakarta Post via email.

Citibank said it would hire 1,400 new workers to run its debt collection business rather than use a third party.

Citigroup vice chairman Lewis Kaden, who visited Indonesia in the wake of the scandals, said “both matters are being treated with the utmost seriousness by our senior management”.

“We are doing everything possible to support due process and cooperate with the ongoing investigations,” he said in a statement sent to the Post.