Citi Cuts Its Q4 Earnings Because One Of Its Subsidiaries Was Defrauding Mexico's State Oil Company

REUTERS/Tomas Bravo A couple admire Mexico flags used through its history at the Obispado lookout in Monterrey September 14, 2010. Mexico is preparing lavish celebrations this week to mark the 200th anniversary of the day rebel priest Miguel Hidalgo set it on a path to independence.

Citigroup has revised down its Q4 2013 earnings by $235 million because of fraudulent activity in one of its Mexican subsidiaries, Banco Nacional de Mexico (Banamex). An audit Banamex had been scamming money from Pemex, Mexico's soon-to-be-former state oil company.

Over several years, Banamex was able to overcharge Pemex for services to a third party company, Oceanografia S.A. de C.V. (OSA), that provided equipment for Pamex.

From Citi's release:

"Pemex asserted that a significant portion of the accounts receivables recorded by Banamex in connection with the Pemex accounts receivable financing program were fraudulent and that the valid receivables were substantially less than the $585 million referenced above."

Pemex only owed Banamex about $185 million, according to the audit.

Citi CEO Michael Corbat says the investigation is ongoing, but that he believes that this is an isolated incident. The bank is also collecting misappropriated funds and cooperating with law enforcement in Mexico.

"I can assure you there will be accountability for those who perpetrated this despicable crime and any employee who enabled it, either through lax supervision, circumvention of our controls, or violating our Code of Conduct," said Corbat in a statement. "All will be held equally responsible and we will make sure that the punishment sends a crystal clear message about the consequences of such actions."