Although Pomeroy now claims not to recollect such allegation "I told him parking done to comply with local regulations in view of Citibank's world wide trading capabilities." (485-489, Pomeroy 39). Edward's allegations regarding Paris transferring of profits to tax haven Nassau were accurate. He was, however, then unaware of the widespread and the longstanding nature of the practice of parking and the people he was reporting his concerns to were fully aware of the dimensions of the practice. On 3/31/77, Vojta, the head of IBG, told all divisions heads ACO's and Senior officers that: "Each ACO/Senof will audit local tax plans and exposure to assure they'll stand up to rigorous legal and regulatory As of 4-18-77, Young had told Pomeroy to Clayman). (7921-7922). of Edwards' allegations (530-531 In 5+77, Eyre, at the suggestion of another officer of the bank, assigned the head European Comptroller, based in London, Gene Sweeney, to contact Edwards. On 5-13-77, Sweeney met Edwards in Amsterdam and Edwards told his story again. (11-14-77 DE memo to Sweeney On 5-16-77, Pomeroy wrote Allars (another member of the Comptroller's staff): "Eyre told me Edwards has been talking again. I was afraid of this if we didn't do something to raise so he could quit with a good salary" (528, Pomeroy 40). On 6-17-77, Pomeroy wrote Allars (Pomeroy 40) re Edwards, in part: **** then talk to [Huntington] about the best way of un- On 6-13-77, Edwards met Armstrong and Sweeney in London, Edwards told Armstrong and Sweeney that a former Citibank trader, Jean Michel Ennuyer, could corroborate his suspicions regarding (11-14-77 DE to Sweeney 6). Edwards was led to believe what he said would not get back to Young or However, Armstrong, at Sweeney's instructions when he returned to Paris on the next day, told Young what Edwards had "Gur original hope was that Connolly would come forward as a witness if the case of a defamation suit." Connolly declined. On 12/14/77, Theobald wrote to Edwards, in part: "I have discussed with a number of Citibank senior officers ↑ was involved in taking kickbacks ***, (2) Paris branch engaged in improper accounting practices, Theobald wrote to Edwards that the bank had concluded that "your continued allegations were detrimental to the best interests of Citibank. Therefore, we request your immediate resignation. He then invited Edwards to bring to the banks attention any evidence which would tend to substantiate his allegations. On 1-31-78, Edwards did send a compliation of such evidence (called the Bluebook) to the Audit and Examining Committees. On 2-8-78, Citibank's attorneys told Edwards' counsel in part that, Citibank "conducted its own extensive investigation of the facts. I see no basis for Mr. Edwards demanding 'adequate explanations' of Citibank business practices before he will stop bothering the bank,' and wish to emphasize that the management of Citibank does not consider itself to be under any obligation to discuss with Mr. Edwards such practices or the results of such investigation." On 2-9-78 Theobald wrote Edwards, in part: We have already informed you of our conclusion In 3-78, on advice of his counsel, Edwards made his allegations known to the SEC, which opened the investigation May 17, 1978. In 7-78, Edwards sued for wrongful dismissal, attaching to his complaint some documents evidencing the practices of parking by Citibank. The allegations re "parking" made the press and in reply, Theobald was quoted as saying re parking that the laws which do not allow currency traders to maintain positions overnight do "not recognize the reality of international money trading, essentialy a 24 hour, and which frequently requires a trader to hold a position overnight based on his projections of future drops on increases in value of a currency." Further, "many of the transactions Edwards claims were designed to evade taxes were in fact necessitated by local laws which forced the bank to 'park' holdings in certain currencies in off-shore branches because the country would not allow a local trader to hold the position overnight." W 78-79). This, of course, is the purpose of such laws, to prevent entities within their jurisdictions from speculating on their currency overnight, with consequent harm to that country's national interest. There would be nothing wrong for Citibank New York to be informed at the end of the European trading day (2 or 3 PM EST) of Citibank Zurich's or Citibank Frankfurt's position in the franc or Deutschemark and deciding on his own to hedge or nullify such position by a legitimate third party transaction opposite to the position the FX trader in Zurich or Frankfurt had taken. This, however, is not what Citibank does. It is Citibank policy to permit the FX trader in Europe to control positions off his own books by instructing accommodation branches that they have bought or sold certain currencies at certain prices. This is precisely what the Citibank FX trader in Zurich or Frankfurt has done. He unilaterally causes a speculative position he wishes to hold overnight to disappear from his books and be put on an accommodation branch's books. The only thing that "necessitates" or "forces" parking is Citibank's desire to permit its traders to speculate overnight against the monetary and economic policy of the host government, and profit thereby. Theobalds statement is the same as a corporate director explaining that he was "forced" to trade in his companies securities through a Swiss account as Section 16(b) prevented him from 'trading them in the U.S. Citibank also claimed that Edwards said he would be willing to leave the bank only if it would support a private research project, help him find a new job, and continue to subsidize the cost of his New York apartment. (NYT 7-29-78) Theobald was also quoted in the Washington Post as saying that every transaction described by Edwards "would withstand local scrutiny" and that "the bank had investigated Edwards charges and found them baseless." (WP 8-28-78). On 11-5-78, the Washington Post reported that "sources within the bank outlined an extensive effort on the part of Citibank officials to contain the employee's allegations of illegal activities within the bank's European operations" and "Sources inside the bank say that high bank offici continually thwarted Edward's efforts to detail his allegations, repeatedly tried to get him to drop them and eventually fired him when he refused to accept a transfer to a non-sensitive division in New York." Also, "One bank source said many of the allegedly illegal activities attributed to Citibank officers in Europe by Edwards were in fact true but that the officials in question were acting under orders of the bank. The In an interview in 1979, Wriston told Executive magazine that Edwards was fired because he was totally imcompetent and that Edwards "famous accusations didn't arrive until after he was dismissed." record, of course, shows this is wrong. This effort to portray Edwards simply as a disgruntled and incompetent employee is patently, incorrect and unfair. Citibank internal documents clearly show that Edwards brought to the attention of the Comptroller's Division at least by March 1977, the questionable transfer of profits and violations of exchange control laws. 1-14-80, Hans Angermueller, Citibank's Chief Legal Officer and Executive Vice President was asked by Stanley Sporkin if it was fair for Citibank to fire Edwards. Angermueller replied, "In retrospect, it wasn't fair." The bank nevertheless pressed its motion to dismiss Edwards's lawsuit which it won on the grounds that he had no contract and therefore could be fired at will. This was upheld and Edwards has been unable to find employment as a banker since then. Edwards' motives were never questioned by any evidence we are aware of until after he had filed suit. Edwards' allegations regarding parking were never investigated until he sent a compilation of evidence to the outside directors on the Audit and Examining Committees. Citibank's internal documents are clear that senior management knew when Edwards voiced his concerns that parking and the back-to-back deposits were legally questionable at best. Further, Edwards was told by two Executive Vice Presidents that the bank had investigated all of his allegations and found no substantiation. Such statements would tend to make him doubt his own views and be silent. These representations were false. " As Alan Westin concluded in "Whistle Blowing, Loyalty and Dissent in the Corporation,' "Greater internal-dissent and error-detection procedures are vital to improve the mechanisms of decision making within the corporation]." Corporate whistle blowers have little protection under the law *** "The opinions of the majority of the courts in the 1970's make it clear that most judges are still uncomfortable with 'public policy' exceptions to employer firing powers. Also most government agencies do not give enough help within a reasonable time to whistle blowers who have been the victims of reprisal actions." (Westin p. 176) In 1980, Citibank, purportedly established a procedure for whistleblowers. It provides for "a separate and distinct global corporate procedure for the internal disclosure and investigation of allegations of questionable practices. One reason given for this was "to allow such concerns to surface constructively and without fear of retribution or alienation." (Westin p. 145). То We have concluded that Edwards was essentially correct in his allegations of corporate misconduct. It seems clear that Citibank's corporate policy therefore is to fire employees who whistle blow. the extent this is not the policy, it seems clear that Citibank has violated its policy. In either event, we feel it is an item that a prudent shareholder would consider of significance in purchasing Citicorp stock. To the extnet that Citicorp engages in questionable activities abroad, (where it does most of its business) attempts to cover up such activities, either through disguising the transactions, as Citicorp did here, or through intimidation of employees, also the case here, have equal standing. Given the Edwards example, it is doubtful we are going to get any candid testimony by people in the know in Citibank, as the testimony we have already taken shows. We have no way of knowing whether or the extent to which Citibank went to blacklist Edwards. Such evidence would be extremely difficult to find. We do know that Edwards voiced his concerns about transferring profits through corporate channels for many months, and did not make his concerns public (via his lawsuit) until six months after he had been fired, and then with legal advice, and four months after he had brought his concerns to the S.E.C. He is still unemployed as a banker. You have requested that we review and advise you regarding allegations reported to you that certain Citibank foreign exchange transactions and operations may have been conducted in a manner inconsistent with exchange control and tax laws of several European countries. These allegations appear in some of the charges made by Mr. David Edwards, formerly an employee of Citibank. As authorized and directed by you, we retained Peat, Marwick, Mitchell & In response to your request, we are pleased to submit this report which is based upon our study and analysis of the allegations and the facts, and the advice of legal counsel in relevant foreign countries. |
