Good morning, Madam Chairman, Senator Levin, and Members of the Permanent Subcommittee on Investigations.

I am John Reed, Chairman and Co-Chief Executive Officer of Citigroup. I appear today with Todd Thomson, who became the head of our Private Bank about ten days ago, and Mark Musi, the head of the Private Bank's Compliance and Control Department. Unfortunately, Shaukat Aziz, who ran the Private Bank for the last two years and under whose leadership many of the improvements in our Private Bank's anti-money laundering programs took place, cannot participate in these hearings. Mr. Aziz would really have been the most appropriate witness today, given his experience and knowledge but as you know, he was called home to serve his country, Pakistan, as Minister of Finance. He left the Bank on October 29. He asked me to submit his statement for the record, and it is attached to my own.

Citibank is the only United States bank that does business all over the world. We have offices in 100 countries. We have 100 million customers around the world. We operate in a wide variety of cultures, and languages, and legal systems.

These hearings focus on money laundering - the use of the banking system to disguise the origin of money obtained by illegal or questionable means. As one of the world's largest and most global institutions, the prevention of money laundering is a special concern for us - one we have recognized and one to which we have responded. Like all similar institutions, we have had problems and made mistakes. At the same time, I believe that we have one of the best antimoney laundering programs in the industry - one that is effective.

Each of our businesses in each of our locations is vigilant in detecting and preventing money- laundering schemes and other efforts to misuse the financial services we provide to law-abiding clients, both here and abroad. Our anti-money laundering programs, especially in the Private Bank, have evolved and improved significantly in recent years. reflecting the changing nature of these risks and our commitment to be a leader in combating financial crimes while at the same time protecting our customer's financial privacy. It starts with attitude - and we are clear: we do not want to deal with customers who are not honest.

All Financial Institutions Are Potentially Vulnerable To Money Laundering. While the Subcommittee has chosen to focus today on private banking, my own view is that all financial institutions - whether banks, securities firms, or other types of financial intermediaries -are potentially vulnerable to money laundering. Private banks are just one subset of the potentially vulnerable institutions. Our Private Bank, for example, is a very small part of Citigroup, accounting for about 2.5% of Citigroup's business. Private banks in general are no more and no less vulnerable to abuse by the unscrupulous and the dishonest than the much larger parts of most financial institutions. We at Citigroup are deeply committed to the fight against money laundering in every part of the institution, not just in the Private Bank.

Combating Money Laundering. What can financial institutions do to combat the risks of money laundering? They can do the kinds of things that we at Citigroup try to do:

- establish a culture that values and rewards control and compliance, and show that senior management shares that commitment;

- develop and update policies and procedures that meet or exceed applicable legal and regulatory requirements, and train their people in them;

- invest in technology that helps line business personnel comply with anti--money laundering policies and procedures, and that helps compliance personnel monitor compliance; and

- recognize that you must keep working every day to devise even stronger methods to prevent money laundering, because you cannot ever rest safely on your laurels.

The Citigroup Global Anti-Money Laundering Policy. One of the first Citigroup-wide policies to be issued after the merger with Travelers in 1998 was a global anti-money laundering policy. We recently issued a revised and strengthened version of that policy. A copy is attached to my Statement.

Our Global Anti-Money Laundering Policy applies to Citigroup businesses worldwide. It requires that all our businesses adhere to specific standards to protect Citigroup from being used for money laundering activities. Each business unit must have an anti-money laundering program that includes:

- a written anti-money laundering policy that sets forth the business unit's Know Your Customer policies and procedures as well as the other basic elements of its anti-money laundering program;

- the designation of Anti-Money Laundering Compliance Officers or other appropriate personnel specifically responsible for monitoring compliance with the anti-money laundering program;

- appropriate methods of monitoring and reporting suspicious transactions; and

- anti-money laundering training and assessments by the business unit of its adherence to the anti-money laundering policies and procedures that it has established.

Making Sure Our Anti-Money Laundering Policy Works. At the corporate level, we have established the Global Anti-Money Laundering Compliance unit, which has responsibility for coordinating the anti-money laundering compliance programs of Citigroup businesses worldwide. The Global Anti-Money Laundering Compliance unit is headed by Joe Petro, whose background in law enforcement includes significant experience developing financial crime enforcement policy, and the unit has as its general counsel a former federal prosecutor.

This corporate level commitment to anti-money laundering efforts is very important not only for what it accomplishes but also for what it tells your employees about the seriousness with which we approach our anti-money laundering responsibilities.

The Private Banking Business. Private banking - in essence, the provision of sophisticated financial products and services to wealthy clients - is probably about as old as the banking business, and Citibank has been in the business for many years. The business has changed dramatically in just the last several years. On the international side particularly, it was once driven by local inflation and bad economic policies in many emerging market countries. But with the tremendous increase in private wealth around the world, the desire for global investment opportunities is now much more important. In addition, regulatory scrutiny of how much a bank knows and has recorded in its files about the manner in which private banking clients obtained their wealth is much greater now than in the past.

I am convinced, and have been for a long time, that the private banking business can be conducted in an honorable way, fully consistent with the expectations that our regulators and the public have for an institution like Citibank. Under Mr. Aziz's leadership, the Private Bank re-thought its basic business strategy and target clients. To summarize very briefly what Mr. Aziz explains in his Statement, the business model now focuses on "wealth creators" - such as business owners and corporate executives - who want superior service and investment performance. These clients, like the rest of us, want their personal financial affairs to be kept confidential, but they are not particularly driven by a desire for secrecy. This business- strategy was presented to the Citicorp Board of Directors in July 1998 by Mr. Aziz, as part of the Board's oversight of the Private Bank.

The Anti-Money Laundering Program At The Private Bank. In addition to re-thinking the business strategy of the Private Bank, Mr. Aziz oversaw a dramatic improvement in the anti-money laundering program of the Private Bank. His Statement reviews these developments in detail. Let me just mention some of the highlights:

- The Private Bank is putting into place a transaction monitoring capability that will allow it to monitor every transaction of every customer utilizing newly developed technological capability. This state-of-the-art computer program creates a model of each client's expected transactions and identifies deviations from expectations, so the Compliance Department can follow-up.

- In 1998, the Private Bank further strengthened its Public Figure Policy, which applies around the world and makes clear that public figures are not part of the Private Bank's target market. The policy prohibits the acceptance of a. public figure client without approval of a Committee consisting of the head of the Private Bank as well as those in charge of Compliance, Legal and Risk Management at the Private Bank. Each public figure that is a client is-reviewed every year by this Committee.

These are significant improvements, reflecting commitment and hard work by the Private Bank. We believe they put the Citibank Private Bank at the forefront of the industry in the fight against money laundering.

There is no question that in the mid-I990s, the control environment in the Private Bank -was not satisfactory. Our internal audits showed this. These unsatisfactory audits of the Private Bank drew my attention and that of the Audit Committee of the Board. In banking, control must come before profitability or growth. In response to these unsatisfactory audits, key personnel at the Private Bank were replaced, policies and procedures were revamped, and technology was significantly improved.

My own view, looking back over the efforts at the Private Bank through the 1990s, is that our internal processes for identifying and fixing problems worked fairly well. The internal auditors were candid and specific in expressing their concerns. Senior management and the Board's Audit Committees took note and took action. Of course, the changes did not occur overnight, and in retrospect one could take issue with whether they happened fast enough. But when part of what had to be done was to make sure that the culture of the Private Bank reflected the commitment of the whole institution to our anti-money laundering efforts - as was the case here - change takes time. You cannot simply call a meeting of all 3,600 employees of the Private Bank for 4 p.m. one day, announce that "the culture will change effective immediately," and expect to get the results you want. It takes long, hard work. We are doing the work, and we are getting results.

Our regulators, I am glad to say, agree. In January 1999, the Federal Reserve wrote in its Examination Report that the management of the Private Bank "has demonstrated that it is committed to achieving its goal of changing the culture of the Private Banking Group and creating a well-integrated global risk management and internal control structure. Significant progress has been made in correcting control deficiencies noted at the prior inspection, including those in ... KYC Compliance."

The Salinas Matter. It is my understanding that the Minority Staff has been particularly interested in Citibank's actions in connection with Raul Salinas. The events in question, as you know, occurred more than five years ago, in a completely different regulatory and technological environment.

We have learned much from the Salinas matter. We remain convinced that Citibank and its employees violated no laws or regulations in the way the Salinas account was handled. At the same time, the Salinas matter was one of the events that showed us, and all financial institutions, the necessity of stricter know your customer and transaction monitoring policies, and of assuring their complete implementation. The Citibank Private Bank, as I noted before, has dramatically improved its transaction monitoring capabilities in the last few years, as well as the documentation of our know your customer information, by making a multi-million dollar investment in state-of-the-art technology.

The General Accounting Office issued a report last year on Citibank's relationship with Raul Salinas. We have prepared some comments on the Report, which I have attached to my Statement, and which I hope will put some of the Report's criticisms of our activities into the proper perspective. But I think the most important thing to tell you is that Citibank has learned from the past, and it has moved forward. After you read Mr. Aziz's Statement about the improvements in the Private Bank's anti-money laundering program, I am sure you will agree with me.

First and foremost, we as bankers must remember that no matter how much we learn, none of us can ever relax in the fight against money launderers. The battle against money laundering requires relentless improvement in our systems and techniques. I know that we have learned this lesson at Citigroup.

A challenge that bankers, regulators and Congress all face is learning how to fight money laundering in organizations that engage not only in banking activities, but also in securities and insurance activities in the United States through a financial holding company under the new financial modernization legislation. We at Citigroup have a bit of a head-start on other organizations, because we have been operating in this form now for a little more than a year. As I described above, we have decided to apply our anti-money laundering policies across the entire corporation, a decision that I think reflects our commitment to the fight against money laundering. I hope other institutions will make the same decision, but if they do not, the regulators and Congress will have to consider what steps to take.

Finally, I hope Congress will follow and support efforts by the private sector to establish uniform international anti-money laundering standards. We live and work in a completely global economy, where funds move at the speed of electrons and banks from all over the world compete with one another for business. The fight against money laundering cannot be won by any one institution or even by any one country. Global standards and self-regulation would ensure that Citigroup and other institutions committed to stringent and effective anti-money-laundering efforts are not undermined by institutions and countries that do not share our commitment.

The Citibank Private Bank, under Mr. Aziz's leadership, developed a proposal for a private sector initiative through which private banks throughout the world would develop and pledge to follow a set of "Best Practices for Combating Money Laundering Risks." We raised this issue with other private banks at a meeting with Transparency International on October 28 in Zurich, Switzerland. Last week we followed up with a letter to Transparency International that included our own Know Your Client policies and a list of what our Private Bank believes are critical elements of a "Best Practices" guide. A copy of these materials is attached to my Statement. Todd Thomson, the new head of our Private Bank, will now assume responsibility for our efforts to help develop uniform international anti-money laundering standards for private banks.

I thank you for allowing me to testify, and for the attention you are giving to these important issues.

A. Statement of Shaukat Aziz.

B. Citigroup Global Anti-Money Laundering Policy, issued October 28, 1999.

C. Citibank Comments on the GAO Report on "Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering."

D. Proposal for International Standards for Private Bank Anti-Money Laundering Programs submitted to Transparency International.

Senator Collins, Senator Levin and Members of this distinguished Subcommittee: I regret that I cannot participate in the hearings on the vulnerability of private banking to money laundering activities. As you know, I spent a great deal of time and effort while I was Group Executive of the Citibank Private Bank to reduce the Private Bank's vulnerability to money laundering activities, and I was looking forward to discussing with you the lessons we have learned and the policies we have adopted. However, I have been asked by the government of my home country to serve as Minister of Finance. This call to duty was unexpected and at the same time compelling. I hope you will find this Statement a useful contribution to these important hearings.

Private banking - that is, providing investment management, trust and estate assistance, and other financial services to wealthy individuals - has been a part of the banking business for at least a hundred and fifty years. Today, more than 15,000 financial institutions offer private banking services; taken together, these institutions manage some $15.5 trillion dollars worth of assets. The top ten participants in this sector, including the Citibank Private Bank, account for less than 10% of the total market.

The Citibank Private Bank serves approximately 40,000 customers and has about 3,600 employees. Although the Citibank Private Bank has a presence in more than thirty countries, with offices or branches in fifty-seven cities across the world, more than half of the Citibank Private Bank's customers come from the United States. Citigroup is not the largest provider of private banking services in the world - or even in the United States. In fact, with approximately $101billion in assets under its management, the Citibank Private Bank's share of the private banking market is about one half of one percent. Within Citigroup, the Private Bank represents only about 2 ½ % of Citigroup's overall business.

The private banking sector is one that is growing rapidly: the greatest and longest bull market the world has ever seen, initial public offerings, lucrative stock options, the growing number of professionals in the workplace, and a baby-boom generation that is reaching its peak earning capacity have all combined to create a potential market for private-banking services in which the opportunities for growth are large. For that reason, private banking is a sensible business opportunity for Citigroup. We have undertaken to conduct this business not only in compliance with applicable legal requirements, here and abroad, but also in an honorable and effective way.

When I accepted the job of running the Private Bank in May 1997, it was made clear to me by the company's senior management that before profitability and before growth, my immediate focus would be to address the control issues that had arisen in the Private Bank in the mid-90s.

Consequently, my efforts included:

- improving the Private Bank's Know Your Client and anti-money laundering programs and policies, and seeing that these programs and policies were fully implemented throughout every part of the Private Bank through upgraded compliance and quality assurance programs, among other things;

- upgrading the technology the Private Bank uses for its Know Your Client and transaction monitoring programs;

- altering the Private Bank's business focus so that the target customers are "wealth creators " who want quality service and performance and of course confidentiality, but who are not focused on secrecy; and

- making sure the Private Bank's culture reflects its commitment to controls and compliance.

The Private Bank has made great strides in improving the control environment. I am proud to say that in 1998, the Private Bank passed 91% of its internal audits, and through the third quarter of 1999, the Private Bank has passed 100% of its audits. Needless to say, that puts the Private Bank among the business units having the highest pass rates for audits in Citigroup.

The response of our regulators has also been very positive. Before we adopted the new anti-money laundering policies, we submitted them for review and comments to the federal examiners conducting targeted anti-money laundering examinations. The examiners concurred with our new policies; since then, on-site know your customer reviews conducted in many countries have validated our efforts. We make sure we keep in touch with regulators and peer banks so that we can update and improve our anti-money laundering program as new techniques or guidance becomes available.

In light of the lessons learned from problems in the past, as well as the increased regulatory guidance available, the Private Bank has made dramatic improvements in its anti--money laundering program. I believe the anti-money laundering program at the Private Bank today is at the forefront of the banking industry's efforts to combat money laundering.

The first pillar of the Private Bank's anti-money laundering program is its Global "Know" Your Client" Policy.

A Global "Know Your Client" Policy for the First Time. In September 1997, the Citibank Private Bank rededicated itself to a control culture by issuing a revised Global Know Your Client Policy. The Private Bank, of course had know your customer policies in place before September 1997, but they varied from region to region. The new global policy centralized in one place disparate policies that existed across different regions and units of the bank and made these centralized standards applicable to all Private Bank units across the world. In addition to making the policy uniform around the world, we upgraded and modernized it. The Private Bank now has, I believe, one of the most aggressive and effective know your customer policies in the industry. It is consistent with the Federal Reserve's guidelines for sound private banking practices.

New Customer Profiles and Independent Review. Preparing the Private Bank's Global Know Your Client Policy was just the first stage in along journey. To implement this policy and make it fully effective, the Private Bank spent two years and over $50 million to complete over 100,000 customer profiles for each of the Private Bank’s primary customers and related account holders, authorized signers, and personal investment companies. After these profiles were compiled, they were reviewed by independent quality assurance teams to ensure that the profiles were complete and properly documented. To manage these profiles and make them readily accessible to Citibank for know your customer assessment purposes, these profiles will be maintained in a new and secure on-line database called ClientWiseR.

The kinds of information that must be gathered, recorded, and confirmed under our Global Know Your Client Policy include our customers' occupations, their source of wealth, and their references. This information will be updated and enhanced regularly during the course of the relationship with the customer from call reports and other notes compiled by the relationship manager and others who work with the customer. In addition, information about other signatories on the account and related accounts is gathered and recorded under the Private Bank's Global Know Your Client Policy.

Our relationship managers have primary responsibility for obtaining this information, as they are the ones with the direct contact with our customers. In the past, relationship managers did not always record the know your customer information they had in files, their heads, or elsewhere in accordance with a standard methodology. Today we guard against that problem by requiring the know your customer information to be reviewed by independent quality assurance personnel in each region, who make sure that this information is complete. Depending on the circumstances, we may rely on publicly available information, financial statements, personal visits, references, the views of our senior Global Market Managers, and other data to confirm the know your customer information, all subject to review by independent quality control personnel.

The Assist@ system establishes a profile of expected transactions (both number and size) for each customer, based on the customer's past activity. If there is a deviation from the expected pattern of activity in a customer’s account - such as transactions for total amounts or in greater numbers than are expected - the deviation is automatically reported by the program, and the Private Bank's Transaction Monitoring Units follow up with the customer's relationship manager to see that the deviation is explained and documented.

Assist@ is the latest stage in the development of the Private Bank's monitoring of transactions for signs of potential money laundering. For the first time, the Private Bank has the technological capability to monitor each customer transaction that takes place within the Private Bank. Before we implemented Assist@, we monitored all transactions for customers that met certain criteria identified as having a higher potential for money laundering risks; for the remaining clients, we relied on a series of reports that alerted us to cash transactions greater than $ 10,000, large balance fluctuations, and large monetary transactions. Our old transaction monitoring systems were typical of what were then considered to be sound industry practices, given the technology that existed at the time. But the technology introduced by a very few software developers in the last two to three years is dramatically better, and we have tailored that technology to meet the particular business of private banking. With Assist@, we now have the capability to monitor more transactions with greater accuracy because we will now monitor every transaction for every account at the Private Bank.

The third pillar of the Private Bank's anti-money laundering policy is the Private Bank's "Public Figure" policy, which was revised, expanded, and reissued in June 1998. The Private Bank's Public Figure policy explicitly sets forth our standards for accepting and maintaining accounts for politically prominent persons and their families, whether those persons are here in the United States or abroad. These persons, whom we call "public figures," are not a target market of the Private Bank.

Very Few Public Figure Clients. There are very few "public figure" customers at the Private Bank. Of the 40,000 customers served by the Private Bank, only 350 or so are classified as public figures.

There are two reasons why the Private Bank has so few public figure clients. First, many public figures simply are not part of the market segments that we seek as customers; because they are government officials, they are not the active business owners or corporate executives that we would like to have as customers. Second, as the Raul Salinas matter and these hearings show, clients who are public figures can expose the Private Bank to special risks because of their prominence and public positions.

In addition to these three major policy initiatives, we changed several other policies in light of the Private Bank's experience. To take one example, we no longer permit individual customers to use the Bank's internal transaction accounts, sometimes called "concentration accounts," to transfer funds between accounts in different countries as was done in the Salinas matter. Now, each transfer of funds through a concentration account must also - either immediately before or immediately after such transfer - go through the customer's deposit account. This ensures inclusion in the Private Bank's comprehensive monitoring of customer transactions.

An independent, experienced, high-quality Compliance Department is essential to assuring that our policies, procedures, and systems work effectively and are implemented properly.

Citibank's Private Bank has an excellent Compliance Department headed by Mark Musi, an experienced compliance officer and former auditor. Mark became head of the Compliance Department in June 1996. He reports directly to the head of the Private Bank. Personnel in the

Compliance Department are compensated and promoted on the basis of how well they do their job, not on the basis of the profitability of the customer relationships.

To ensure that our extensive Know Your Client and anti-money laundering policies and procedures are being followed, Mr. Musi and his staff have developed and deployed myriad programs to teach our employees about our policies and to help them understand and follow these policies. Among these programs are an innovative series of forward-looking self-tests that allow management and line personnel to validate compliance with anti-money laundering policies, laws, regulations, and control practices and to solve problems before they have a chance to arise.

Besides these self-tests, Mr. Musi and his staff participate with the business units in the development of new products and services to make sure that these products and services do not expose the Private Bank to the risk of money laundering. Mr. Musi and his staff also interact with various regulators, to stay abreast of the latest developments in the field and to keep the regulators informed of our anti-money laundering efforts. Of course, these activities by our Compliance Department are separate from and supplementary to the internal audits, external audits, and federal regulatory examinations of the Private Bank, each of which periodically assesses our control environment.

We made a multi-million dollar investment in state-of-the-art computer applications to assure compliance with our Know Your Client and our anti-money laundering policies and procedures. I believe that the Private Bank is now leading the industry in using the latest technologies to combat money laundering.

ClientWise(r), which is the technology that has helped us to implement and administer our Global Know Your Client Policy, and Assist(r), which is the technology that has helped us to implement and administer our transaction monitoring program, are quite new, and were certainly not available to anyone in the early or mid-90s. The Private Bank has worked tirelessly with our vendors to develop technologies that will help us stay ahead of money launderers. The cost - in terms of money, time, and business opportunities lost because of the money and time we spent on developing technology - has not been small, but the results are worth it.

Our new Know Your Client and transaction monitoring policies are just one aspect of the evolution of the Citibank Private Bank. One of the things that I did as the new Group Executive was to think about the future of the private banking business at Citigroup, by asking myself and others about the kinds of customers that we at the Private Bank wanted to serve and should be serving. These questions have profound implications for our Know Your Client and anti-money laundering policies and practices because the answers to these questions determine who our customers are and will be in the future.

After discussing this matter with other people, both within and outside Citigroup, and within and outside private banking, I concluded that private banking has changed profoundly over the past decade. The old model of private banking, which is sometimes called the "Swiss" model, was outdated and stagnant, from a business, legal, and compliance standpoint. The old model focused too much on clients who had inherited their wealth and who valued private banking for the secrecy and security that they believed it could provide them in the handling of their financial affairs.

I became convinced that if the Citibank Private Bank were to flourish, we needed a new model for Private Banking, an "American" model, if you will. The focus of this new model was to be what I call "wealth creators": business owners, corporate executives, investors, and professionals like lawyers who derive most of their income and wealth from business activities. These customers want and need the sophisticated investment strategies and other products and services that the Citibank Private Bank can provide. They want their financial information kept confidential, as does everyone, but they are not driven by a desire for total secrecy.

Thanks to the booming economy here and abroad, there are more of these individuals than there ever have been in the history of the world, and they are under-served by financial institutions. Thanks to the globalization of markets, these individuals have access to more investment opportunities than ever before, opportunities that are growing ever more complex as the global economy develops and changes.

To provide access to products in countries like the U.S., to tailor our service and products to suit their needs, and to take advantage of the opportunities that the global economy has to offer, we need more information from and about our customers. Aided by our new technology, we can obtain and record the information that we need from the customers on whom we are focusing, in order to comply with our stringent Know Your Client requirements, and we can more easily monitor and follow up on transactions in the customer's accounts that require further investigation.

It is with this new focus that we reviewed our existing customers and are seeking and accepting new customers. I believe that this strategy will be successful, both in making the Private Bank more profitable and in avoiding the kinds of issues that arose in the past relating to certain of our customers.

One of the great challenges in any large organization is to inculcate the right culture - in this case, a compliance culture that recognizes and rewards stringent enforcement of our Know Your Client and anti-money laundering policies and procedures. As you well know, it takes time to shape and direct the culture of any large organization, even more so when the organization operates around the world and includes a remarkable diversity of nationalities, languages, and backgrounds.

There are techniques for changing the culture of large organizations, and we have used them in the Private Bank to reinforce our commitment to creating and maintaining an effective control culture.

I began, of course, with our Know Your Client and our anti-money laundering policies and procedures. Adopting a consistent, uniform standard throughout the Private Bank demonstrated a business-wide commitment to an effective control culture. That commitment was underscored by centralizing the management of the Private Bank's Compliance and Legal functions in New York. Our commitment is also demonstrated by the continuous training and self-testing programs we have put in place. The training and the self-testing remind everyone that our Know Your Client and anti-money laundering policies and procedures are a never-ending responsibility that we must strive continuously to improve.

In addition, we have in place at the Private Bank a compensation plan that rates our bankers on a variety of criteria, including, importantly, their compliance with anti-money laundering and other control items. Our employee rating system contains what we call "boundaries," which define the limits on employee behavior. The boundaries include not violating control and compliance standards, applicable laws, or policies. Complying with Private Bank "boundaries" is a requirement for bonus eligibility.

Bonuses of Private Bank personnel have in fact been withheld or reduced for inadequate performance on control and anti-money laundering matters. That sends a strong signal to the organization as a whole about what qualities the culture values. In addition, as I noted before, our Compliance personnel, who oversee the implementation of the anti-money laundering policies and procedures, have a compensation system that does not depend on the profitability of any particular Private Bank client relationships.

Finally, we have tried to make sure that our employees understand the relationship between control issues and our competitive position. As I noted above, I believe the Citibank Private Bank has created a new model of private banking, a model that seeks to provide superior service to wealth-creators. You can provide superior service only if you truly know your customers, and you can be profitable only if you provide superior service. The Private Bank has made its commitment to control an inseparable part of its commitment to quality and profitability; for its employees, the Private Bank's commitment to control is an inseparable part of their compensation.

The Citibank Private Bank was not alone in changing its response to know your customer and anti-money laundering issues. In the early to mid-90s, there was little regulatory guidance on these issues as they applied to private banking. Instead, the regulators' focus was cash transactions and structuring of cash transactions.

But the world changed. Money launderers got smarter. They got more creative. In view, of these and other developments, in 1996 and 1997, the Federal Reserve System reviewed 40 United States and foreign banks to learn about sound risk management practices in private banking operations. We participated in that study. In July 1997, the Federal Reserve issued a paper on "Sound Risk Management Governing Private Banking Activities." This was the first such guidance from our regulator. The Federal Reserve said there must be active senior management and an appropriate corporate culture to encourage compliance and control; that there must be written know your customer policies and procedures; that there must be risk management practices and monitoring systems; and that there must be a segregation of the compliance, audit, and business functions.

In the mid-90s, the Private Bank perhaps did not do as well on some of these points as it should have. But by 1997, when the Federal Reserve issued its report, w e already had all of these practices in place. In fact, I am confident that some of the policies and procedures that the Federal Reserve identified in its report as "sound risk management practices" must have been influenced by its review of what we were doing at the Citibank Private Bank.

What results do we see from our better business focus, our better policies and procedures, our better technology, our better culture, and better regulatory guidance? For one thing, we see much better audit reports. The Private Bank audits in the mid-90s were not satisfactory. But in 1998, the Private Bank passed 91 % of its internal audits, and through the third quarter of this year, the Private Bank has passed 100% of its audits.

Another sign that we are on the right track has been the regulators' response to our new policies and procedures. Before we implemented our new policies, we submitted them to our federal examiners for their comments. The examiners concurred with our new policies, and the Citibank Private Bank has since become, I believe, one of the regulators' benchmarks of excellence.  For all these reasons, I believe the Citibank Private Bank is now at the forefront of efforts to combat money laundering, but as I have said repeatedly inside the Bank, the fight against money laundering requires the relentless pursuit of new techniques of detection as those who try to misuse the Bank develop increasingly sophisticated ways to evade detection.

I understand that one of the issues the Senators may be interested in is whether the conduct of private banking business in so-called "secrecy" jurisdictions, like Switzerland, prevents implementation of appropriate anti-money laundering programs. Citibank has a subsidiary bank in Switzerland, as well as a trust administrator that provides products and services to our non-U.S. Private Bank customers.

In my view, Swiss bank secrecy law does not impede the implementation of our anti--money laundering program. Our bankers and employees in Switzerland must comply with the same global, uniform standards that apply to our operations in the United States or anywhere else in the world. Switzerland itself has very stringent know your customer requirements; in several ways, the Swiss requirements exceed those of the United States. We brief our U.S. regulators on our Swiss operations, and our internal audits in Switzerland are provided to our U.S. regulators.

As for the contention that banking in Switzerland somehow insulates customers against inquiries from criminal authorities in the United States or elsewhere, the facts simply do not bear the argument out. As I understand it, Switzerland was the first country to sign a Mutual Legal Assistance Treaty with the United States, a sign of its commitment to cooperation with the United States in combating money laundering and other crimes. Switzerland's bank secrecy laws therefore do not bar law enforcement authorities from seeking information in cooperation with the Swiss authorities. And as the actions of the Swiss federal prosecutor have shown repeatedly, the Swiss have little patience for those whom they suspect of using Swiss law to hide criminal activity.

As you are aware, one of my interests as head of the Citibank Private Bank was the development of uniform, world-wide anti-money laundering standards that would be adopted by private banks all over the world. I am pleased to say that just before I left the Bank, we developed a proposal for a private sector initiative for the development of uniform "Best Practices To Combat Money Laundering" for private banks for presentation to other private banks at a meeting with Transparency International in Switzerland on October 28, 1999. I could not attend that meeting as I had planned, because of preparations to return to Pakistan, but I am sure others will be able to report to the Subcommittee on our progress.

I appreciate the Subcommittee's constructive inquiries into anti-money laundering developments, and I am sorry I will not be at the hearing to provide whatever assistance I could.

Thank you.

In the global marketplace, the attempted use of financial institutions to launder money is a significant problem that has caused great alarm in the international community and has resulted in the passage of stricter laws and increased penalties for money laundering in Europe, Argentina, Australia, Canada, Colombia, Pakistan, Taiwan, the United States, and many other countries. It has also spurred the formation of the Financial Action Task Force on Money Laundering, an inter-governmental body comprised of 26 nations and two regional organizations established to coordinate the global battle against money laundering.

This Policy establishes governing principles and standards to protect Citigroup and its businesses from being used to launder money. All Citigroup employees, wherever located, must be vigilant in the fight against money laundering and must not allow Citigroup to be used for money laundering activities. We cannot permit ourselves to become participants in a violation of law.

This Policy is applicable to Citigroup, its subsidiaries, and its managed affiliates worldwide.

Citigroup businesses must:

-- protect Citigroup from being used for money laundering;

-- adhere to the Know Your Customer policies and procedures of their businesses;

-- take appropriate action, once suspicious activity is detected, and make reports to government authorities in accordance with applicable law; and

-- comply with applicable money laundering laws, as well as the recommendations of the Financial Action Task Force on Money Laundering as incorporated into this Policy.

Money laundering is not just the attempt to disguise money derived from the sale of drugs. Rather money laundering is involvement in any transaction or series of transactions that seeks to conceal or disguise the nature or source of proceeds derived from illegal activities, including drug trafficking, terrorism, organized crime, fraud, and many other crimes.

Generally, the money laundering process involves three stages:

-- Layering - Separating the proceeds of criminal activity from their source through the use of layers of financial transactions. These layers are designed to hamper the audit trail, disguise the origin of funds. and provide anonymity. Some examples of services that may be used during this phase are the early surrender of an annuity without regard to penalties, fraudulent letter of credit transactions, and the illicit use of bearer shares to create layers of anonymity for the ultimate beneficial owner of the assets.

-- Integration - Placing the laundered proceeds back into the economy in such a way that they re-enter the financial system as apparently legitimate funds.

The degree of sophistication and complexity in a money laundering scheme is virtually infinite and is limited only by the creative imagination and expertise of criminals.

A financial institution may be used at any point in the money laundering process. Citigroup businesses must protect themselves from being used by criminals engaged in placement, layering, or integration of illegally derived proceeds.

In adhering to this Policy, as with every aspect of its business, Citigroup expects that its employees will conduct themselves in accordance with the highest ethical standards. Citigroup also expects its employees to conduct business in accordance with applicable money laundering laws. Citigroup employees shall not knowingly provide advice or other assistance to individuals who attempt to violate or avoid money laundering -laws or this Policy.

Money laundering laws apply not only to criminals who try to launder their ill-gotten gains, but also to financial institutions and their employees who participate in those transactions, if the employees know that the property is criminally derived. "Knowledge" includes the concepts of "willful blindness" and "conscious avoidance of knowledge." Thus, employees of a financial institution whose suspicions are aroused, but who then deliberately fail to make further inquiries, wishing to remain ignorant, may be considered under the law to have the requisite "knowledge." Citigroup employees who suspect money laundering activities should refer the matter to appropriate personnel as directed by their businesses' policies and procedures.

Failure to adhere to this Policy may subject Citigroup employees to disciplinary action up to and including termination of employment. Violations of money laundering laws also may subject Citigroup employees to imprisonment and, together with Citigroup, to fines, forfeiture of assets, and other serious punishment.

This Policy establishes the minimum standards to which Citigroup businesses must adhere. In any case where the requirements of applicable local money laundering laws establish a higher standard, Citigroup businesses must adhere to those laws. If any applicable local laws appear to conflict with the standards of this Policy, the particular Citigroup business must consult with its local and regional legal and compliance officers who must in turn consult with Citigroup, Global Anti-Money Laundering Compliance on the possible conflict.

2.1 Each Citigroup business unit shall be covered by an anti-money laundering program that provides for policies, procedures, and internal controls to effect compliance with applicable law and to implement the standards set forth in this Policy. Anti-money laundering programs shall include:

- a written anti-money laundering policy that sets forth a business's Know Your Customer policies and procedures as well as the other basic elements of its anti-money laundering program;

- the designation of Anti-Money Laundering Compliance Officers or other appropriate personnel responsible for coordinating and monitoring day-to-day compliance with this Policy;

- recordkeeping and reporting practices in accordance with applicable law;

- appropriate methods of monitoring so that suspicious customer activity can be detected and appropriate action can be taken;

- reporting of suspicious activity to government authorities in accordance with applicable law;

- anti-money laundering training; and

- assessments by a business of its adherence to the anti-money laundering policies and procedures that it has established.

2.1.1 In developing their. anti-money laundering programs, Citigroup businesses shall assess the money laundering risks they face, taking into account the following factors:

- the different categories of customers, including whether the Citigroup customers conduct financial transactions for their own customers (Examples of such customers include banks, brokers or dealers in securities, mutual funds, investment managers, money transmitters, currency exchanges, foreign exchange businesses, check cashers, issuers and sellers of money orders and traveler’s checks, attorney escrow accounts. and hotels with casinos.):

- the nature of the Citigroup products and services that are provided:

- the customers' expected use of the Citigroup products and services: and

- the localities of the Citigroup businesses and their customers.

2.1.1.1 One category of customers, namely, "public figures and related individuals," can pose unique reputational and other risks.

2.1.1.2 For purposes of this Policy, a "public figure" is any individual who occupies, has recently occupied, is actively seeking, or is being considered for, a senior position in a government (or political party) of a country, state, or municipality or any department (including the military), agency, or instrumentality (e.g., a government-owned corporation) thereof.

2.1.1.3 For purposes of this Policy, a "related individual" is any person who is a member of the immediate family of a public figure, e.g., a spouse, parent, sibling, or child; or a senior advisor closely associated with a public figure.

2.1.1.4 In developing their anti-money laundering programs, all Citigroup businesses must assess any reputational or other risks posed to their businesses through association with public figures and related individuals. Any such risks may be compounded by other factors, for example, where the account that is to be opened or maintained is not located in the home country of the public figure or related individual.

2.1.1.5 Commensurate with the assessment of those risks, Citigroup businesses shall have policies and procedures for opening or continuing to maintain a relationship for an individual who is known through reasonable measures to be a public figure or related individual (including a customer who was not a public figure or a related individual when a relationship was established and who subsequently became a public figure or related individual) and for a legal entity which is known through reasonable measures to be substantially owned or controlled by a public figure or related individual. Such policies and procedures shall provide for:

- Referral of any questions as to whether an individual is a public figure or a related individual to an Anti-Money Laundering Compliance Officer or other appropriate personnel designated by a business;

- Inquiry as to the reputation of the public figure or related individual which should include:

- consultation with the Country Corporate Officer or senior business manager in the home country of the public figure or related individual;

- consultation with appropriate legal and compliance officers; and

- review of generally available public information regarding the public figure or related individual. such as news articles from reputable sources.

- Documentation of an v significant information obtained as a result of such inquiry;

- Approval to open accounts for public figures or related individuals and approval to continue to maintain such existing accounts by a senior business manager in the country where the relationship is to be opened or maintained or that officer's designee;

- Authorization by the public figure or related individual, including waiver of any rights under local laws (e.g., secrecy laws), to ensure that any account information or any other relevant information may be disclosed to any business, legal, or compliance personnel in order to conduct the inquiry and approval process referred to above; and

- Appropriate methods of monitoring on an ongoing and regular basis the accounts of any public figure or related individual.

2.1.2 A business's assessment of the various factors relating to the money laundering risks it faces should be reflected in an anti-money laundering program that is practical and effective. A business's anti-money laundering program should provide for policies, procedures, and internal controls that establish reasonable measures to be taken by a Citigroup business to minimize the risk that it will be used for illicit activities, taking into account the products and services it provides and the types of customers it serves as well as the legal requirements and good practices in the locality where the business is located.

- determine and document the true identity of customers who establish relationships, open accounts, or conduct significant transactions and obtain basic background information on customers;

- obtain and document any additional customer information. commensurate with the assessment of the money laundering risks posed by the customers* expected use of products and services: and

- protect Citigroup businesses from the risks of doing business with any individuals or entities whose identities cannot be determined. who refuse to provide required information, or who have provided information that contains significant inconsistencies that cannot be resolved after further investigation.

Customer Identification

2.2.1 Citigroup businesses shall have policies and procedures to obtain sufficient reliable identifying information to determine the identity of all individual customers.

2.2.2 Citigroup businesses shall have policies and procedures to obtain sufficient reliable identifying information to determine the identity of all corporations and other legal entities.

2.2.3 No special name account (i.e., an account using a pseudonym or number rather than the actual name of the customer) shall be established unless the Citigroup business determines that the customer has a legitimate reason for having such an account and the business maintains records containing the actual name and other identifying information regarding the beneficial owner of the account in the country where the account is maintained and, if applicable, in any country where the account is managed. Approval by the appropriate senior level of management for the business must be obtained before such accounts are established.

2.2.4 The authority of any person authorizing financial transactions on behalf of the customer shall be established by documentation, reference to local law, or other reliable means. Citigroup businesses shall have policies and procedures for determining that person's identity and relationship to the customer.

2.2.5 Reasonable measures shall be taken to obtain information about the true identity of the person on whose behalf a relationship is established or an account is opened or a significant transaction conducted (i.e., beneficial owners) if there are any doubts as to whether the customer is acting on its own behalf.

2.2.6 Citigroup businesses shall have policies and procedures to determine and document at the time of the establishment of a relationship or at the opening of an account, commensurate with the assessment of the money laundering risks posed by the customer's expected use of products and services:

- the customer's source of funds;

- the customer’s source of income and assets; and

- the nature and extent of the customer's expected use of its products and services (i.e.. a transaction profile) or the customer’s investment objectives.

2.2.7 The information about a customer obtained at the time of the establishment of a relationship or the opening of an account constitutes a "customer profile." Citigroup businesses shall have policies and procedures for updating customer profiles and for confirming information provided by customers, commensurate with the assessment of the money laundering risks.

2.2.8 Citigroup businesses shall have policies and procedures to establish the conditions under which they may rely upon another Citigroup business for the identification of a customer who has a relationship with that business and seeks to establish a relationship with another Citigroup business. At a minimum, to rely upon another Citigroup business for the identification of a customer, a Citigroup business must:

- document that the other Citigroup business has a relationship with the customer;

- determine that its identification requirements are reasonably satisfied by the other Citigroup business's Know Your Customer policies and procedures; and

- be able to obtain on request from the other Citigroup business the information and documentation that was obtained and relied upon to determine the true identity of the customer.

2.2.9 Citigroup businesses that rely upon another Citigroup business for the identification of a customer shall obtain any additional customer information required at the establishment of a relationship or at the opening of an account, commensurate with the assessment of the money laundering risks, in accordance with Section 2.2.6.

2.2.10 Citigroup businesses that provide products and services for a customer of another Citigroup business shall have sufficient information to enable them to detect suspicious customer activity. If the Citigroup business that manages the customer relationship has the required information, it shall provide it to Citigroup businesses that provide products and services. If the Citigroup business that manages the customer relationship does not have the required information, Citigroup businesses that provide products and services may obtain the information directly from the customer.

2.3 Citigroup businesses shall be served by Anti-Money Laundering Compliance Officers or other designated personnel responsible for coordinating and monitoring day-to-day compliance with applicable money laundering laws, this Policy, and the anti-money laundering policy applicable to the particular business. Anti-Money Laundering Compliance Officers or other designated personnel may serve other functions and may serve multiple business units.

2.4 Citigroup businesses shall have policies and procedures in order to comply with applicable Record keeping and reporting requirements established by law.

2.4.1 Citigroup businesses shall have policies and procedures for recording and/or reporting cash transactions as required by applicable law and in accordance with this Policy and for developing and implementing methods of monitoring cash transactions in order to comply with applicable recordkeeping and/or reporting requirements and this Policy.

2.4.1.1 Citigroup businesses that effect transactions involving currency, including deposits, withdrawals, exchanges, check cashing, and purchases of instruments, shall record all such transactions in excess of U.S. $10,000 or its local currency equivalent, subject to Section 2.4.2.1 below. Citigroup businesses shall comply with any applicable law that sets a lower recording or reporting threshold.

2.4.2 Citigroup businesses shall develop and implement appropriate methods of monitoring customer transactions to detect cash transactions that are to be recorded and/or reported as well as actual or attempted structuring. Structuring occurs when a customer breaks down transactions below certain dollar or other currency amounts for the purpose of evading a reporting requirement (in the U.S., $10,000) or avoiding detection. In the U.S., structuring is itself a crime, even if the funds are legitimately derived, and structuring wherever it occurs is a sign of possible money laundering.

2.4.2.1 Non-U.S. Citigroup businesses may adopt a threshold amount higher than U.S. $10,000 or its local currency equivalent for recording, reporting, and/or monitoring after taking into account local law, the cash nature of the local economy, and the money laundering risks inherent in such transactions in their country. Citigroup businesses seeking to adopt a threshold amount higher than U.S. $10,000 or its local currency equivalent, however, must have the approval of their Legal and Compliance officer who, before giving their approval, should consult with Citigroup Global Anti-Money Laundering Compliance.

2.4.3 Citigroup businesses shall have policies and procedures in order to comply with applicable law pertaining to funds transfers. U.S. law requires financial institutions within the U.S. and its territories and possessions, with respect to certain funds transfers equal to or greater than U.S. $3 ).000, to record. maintain. and pass on certain information, including information about the originator and the beneficiary.

2.4.4 Citigroup businesses shall maintain the following documents for at least five years unless local law or the particular Citigroup business's policy on document retention specifies a longer period:

- customer profiles;

- reports made to government authorities concerning suspicious customer activity relating to possible money laundering or other criminal conduct together with supporting documentation;,

- records of all formal anti-money laundering training conducted which include the names and business units of attendees and dates and locations of the training; and

- any other documents required to be retained under applicable money laundering laws.

2.5 Citigroup businesses shall develop and implement appropriate methods of monitoring so that throughout the customer relationship suspicious customer activity can be detected, appropriate action can be taken, and reports can be made to government authorities in accordance with applicable law.

2.5.1 In developing appropriate methods of monitoring, Citigroup businesses shall consider:

- Whether monitoring should be done on an individual account basis or at a product activity level using generic parameters; and

- whether computerized or manual monitoring is suitable and practical, taking into account the size and nature of its operations and available technology.

2.6 Citigroup businesses must satisfy any legal obligation to report suspicious activity involving possible money laundering.

2.6.1 Given the differences in local law regarding the reporting of suspicious activity and in some cases the absence of such law, this Policy hereby establishes a uniform standard by which Citigroup businesses, 'wherever located, are to determine whether activity is suspicious for purposes of internal referrals to appropriate personnel as directed by their businesses’ policies and procedures so that appropriate action is taken. Consistent with U.S. law and the recommendations of the Financial Action Task Force, under the Citigroup standard, suspicious activity involving possible money laundering is any transaction conducted or attempted by, at, or through a Citigroup business involving or aggregating U.S. $5,000 or more in funds or other assets or its local currency equivalent that the Citigroup business knows, suspects, or has reason to suspect:

- involves funds derived from illegal activities or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any law or regulation or to avoid any money laundering regulation;

- is designed to evade a money laundering regulation, for example, a cash -reporting regulation; or

- has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage and the Citigroup business knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.

2.6.1.1 The above-referenced U.S. $5,000 threshold is for purposes of internal referrals and does not establish a threshold for transaction monitoring.

2.6.2 Citigroup businesses shall have policies and procedures to provide for the prompt e examination of customer activity that is questionable to determine and document the reason for the activity and whether the activity is suspicious under the Citigroup standard set forth in Section 2.6.1 of this Policy as well as under any standard established by applicable local law.

2.6.4 U.S. regulations require each Citigroup business within the United States and its territories and possessions to send suspicious activity reports ("SARs") to the Department of Treasury 7 s Financial Crimes Enforcement Network ("FinCEN") with respect to any suspicious transaction involving possible money laundering conducted or attempted by, at, or through the Citigroup business and involving or aggregating U.S. $5,000 or more in funds or assets. The U.S. $5,000 threshold does not apply where a Citigroup business was used to facilitate a violation of U.S. money laundering laws and the Citigroup business has a substantial basis for identifying one of its directors, officers, employees, agents or affiliated persons as having committed or aided in the commission of the money laundering offense. Under those circumstances, a SAR must be filed with FinCEN, regardless of the amount involved in the transaction.

2.6.4.1 Citigroup businesses within the United States and its territories and possessions shall send to Citigroup Corporate Security & Investigative Services, Fraud Management Unit, copies of all SARs, when filed, relating to possible money laundering involving a director, officer, employee, or agent of a Citigroup business ora person affiliated with a Citigroup business, and an agreed upon summary on a monthly basis of all SARs that have been filed with FinCEN. In accordance with regulatory requirements, the Fraud Management Unit has the responsibility for notifying the Board of Directors of Citigroup or a Committee thereof of all SARs that are filed, including SARs concerning other suspicious activity unrelated to possible money laundering. Copies of SARs pertaining to suspicious activity involving possible money laundering that are filed should also be sent on a timely basis to the particular Citigroup business's Anti-Money Laundering Compliance Officer or other appropriate legal and compliance personnel.

Citigroup Businesses Outside the United States and its Territories and Possessions.

2.6.5 Citigroup businesses outside the United States and its territories and possessions are subject to local law that may require or permit suspicious activity reporting to local authorities. Whether or not local law requires suspicious activity reporting, Citigroup businesses outside the United States must refer transactions that are suspicious under the Citigroup standard set forth in Section 2.6.1 to their appropriate compliance, legal, or business personnel as directed by their businesses' policies and procedures.

2.6.5.1 Copies of suspicious activity reports filed by a business outside the United States with local authorities and any internal referrals regarding suspicious activity should be sent on a timely basis to the appropriate legal and compliance personnel as directed by the business's polices and procedures.

2.6.6 Citigroup businesses within the United States and its territories and possessions shall have policies and procedures concerning appropriate action to be taken before a customer relationship is terminated because of suspicious activity and before the customer is notified of the decision to terminate. Those policies and procedures concerning pre-termination and pre-customer notification action to be taken shall be reasonably designed to provide for:

- the prompt referral of the matter to a business's Anti-Money Laundering Compliance Officer or other appropriate legal and compliance personnel and communication of the decision to terminate and the anticipated date for notifying the customer of that decision in a SAR to be filed or as a supplement to any SARs that have previously been filed or, where appropriate, by a telephone call from a business's Anti-Money Laundering Compliance Officer or other appropriate legal and compliance personnel to a U.S. Attorney's Office or other appropriate government authority.

2.6.6.1 Situations may arise where a decision to terminate a relationship involves a customer who has used an account in a Citigroup business outside the United States to conduct suspicious transactions through a Citigroup business in the United States. Under those circumstances, the Anti-Money Laundering Compliance Officers for the respective businesses in and outside the United States must communicate and coordinate with each other so appropriate precautions are taken before the decision to terminate is communicated to the customer in question.

2.6.7 Where Citigroup businesses have filed suspicious activity reports or otherwise reported suspected or known criminal violations or suspicious activities to law enforcement authorities, Citigroup employees must not notify any person outside of Citigroup who may be involved in the transaction or any person who is the subject of a suspicious activity report or other report of suspicious activity that the transaction has been reported.

2.7 Citigroup businesses shall provide anti-money laundering training on a periodic basis.

2.7.1 The training shall review applicable money laundering laws and recent trends in money laundering activity as well as the particular Citigroup businesses’ policies and procedures to combat money laundering, including how to recognize and report suspicious transactions.

2.7.2 Citigroup businesses or appropriate legal and compliance personnel shall determine the frequency of training and which personnel must be trained commensurate with their money laundering risk assessment.

2.7.3 Records shall be kept of all formal training conducted. These records should include the names and business units of attendees and dates and locations of the training.

2.7.4 If Citigroup representatives are asked to speak on the topic of money laundering or Know Your Customer policies and procedures at an external conference, consistent with the Citigroup Statement of Business Practices, they should notify Citigroup Global Anti-Money Laundering Compliance before making a commitment to speak.

2.8 Citigroup businesses shall conduct assessments of their anti-money laundering policies and procedures on a periodic basis to provide reasonable assurance that their compliance programs continue to function effectively. The assessment process should include testing and analysis.

Citigroup Global Anti-Money Laundering Compliance has responsibility for coordinating the anti-money laundering compliance programs of Citigroup businesses worldwide. The Director of Citigroup Anti-Money Laundering Compliance shall report directly to the Citigroup General Counsel.

Citigroup's Audit and Risk Review is another important means to protect Citigroup and its businesses from being used by money launderers. Audit and Risk Review will evaluate Citigroup businesses' compliance with this Policy, their own anti-money laundering policies, and applicable money laundering laws.

The owner of this Policy is Citigroup Global Anti-Money Laundering Compliance. Any deviation from the standards set forth in this Policy requires the approval of the Policy owner. Requests for deviations should not be made of Citigroup Global Anti-Money Laundering Compliance unless the appropriate level of management for the business has approved the request.

Adherence to this Policy is absolutely critical so that all Citigroup businesses. wherever located, comply with applicable money laundering laws. Citigroup businesses must be proactive in the implementation of this Policy. Citigroup employees must be vigilant for suspicious activity and promptly refer such activity to appropriate personnel as directed by their businesses' policies and procedures so that all reporting and other requirements are met. Only through constant vigilance can Citigroup employees protect Citigroup products and services from being used to launder money.

Issued: October28, 1999 Effective: January 31, 2000

The GAO Report on Citibank's handling of the Raul Salinas account from 1992 to 1995 properly did not find any violation of anti-money laundering laws or regulations by Citibank or its personnel. At the same time, Citibank would, under current policies and procedures, handle the Salinas account differently in various significant respects today.

Account Acceptance. The GAO Report is critical of certain aspects of Citibank's acceptance of Mr. Salinas as a Private Bank client more than seven years ago. It is true that the documentation of the know-your-customer information relating to Mr. Salinas did not comply with Citibank's then-applicable policy. In particular, the relationship manager did not complete an internal report called CAMS (Customer Account Management System), on which information about Private Bank clients should have been recorded. However, the relationship manager had met with Mr. Salinas more than once prior to opening the account, had received a very strong in-person reference from a long-standing, well-regarded customer of the bank, and believed that she had substantial information (albeit not reflected in CAMS as it should have been) regarding Mr. Salinas and his sources of wealth. Notably, even in 1995, after Mr. Salinas' arrest in Mexico, the Washington Post reported that Raul Salinas "was well known across Mexico as the man who managed the Salinas family's substantial fortune during Carlos Salinas' six year term in office."

The Private Bank's current policies, procedures and systems for account opening are different today, reflecting lessons from the Salinas matter, increased regulatory guidance, and better available technology. Today the relationship manager must obtain and record more specific information about the client's source of wealth and anticipated transactions, and that information is independently reviewed by quality assurance specialists as part of the account opening process. The Private Bank's state-of-the-art software system for collecting and updating client information (called ClientWise(r)) is used for recording and reviewing this know-your-customer information. In addition, public figure clients would now not be accepted unless specifically approved by the head of the Private Bank and the other members of the Private Bank's Public Figure Review Committee.

Nonetheless, in light of the Salinas experience and other developments, Citibank has changed its policies. Under Citibank Private Bank's existing policies, each transfer of funds through a concentration account now must also -- either immediately before or immediately after such transfer -- go through the client's deposit account, which ensures its inclusion in the routine monitoring of that client's transactions. In addition, the Private Bank's new software system (called ASSISTS(r)), which is being implemented throughout the Private Bank this year, automatically monitors all client transactions. This is a vast improvement over prior monitoring techniques, and was simply not available in the early to mid- I 990's when the Salinas transactions took place.

Conclusion. The GAO Report does not, and could not, conclude or even assert that Citibank engaged in money laundering, which would require both proof of a "predicate offense" from which the money arose, and proof that the Bank knew (or was "willfully blind") that the funds had an illegal source. Mr. Salinas has never been convicted of any crime linked to his Citibank funds and in any event the relationship manager involved believed in good faith that the funds were legitimate.

The fundamental point remains that, while there were no legal or regulatory violations in the handling of the Salinas account by the Private Bank back in the early 1990's, Citibank learned a great deal from the Salinas matter, and has dramatically improved its anti-money laundering policies, procedures and systems in the seven years since that account was opened. Regulatory guidance in the area has also significantly increased, as reflected, for example, in the July 1997 publication of "Guidance on Sound Risk Management Practices Governing Private Banking Activities" by the Federal Reserve.

THE CITIBANK PRIVATE BANK
Citibank, NA Mark Musi Chief Compliance & Control Officer
399 Park Avenue
15th Floor/Zone 4
New York, NY 10043 Tel 212/559-5125
Fax 212/793-4144
mark.musi@citicorp.com

November 3, 1999

Mr. Fritz F. Heimann
Chairman
Transparency International
General Electric Co.
3135 Easton Turnpike, W3E
Fairfield, Connecticut 06431

Dear Mr. Heimann:

As we discussed last week at the meeting in Zurich, The Citibank Private Bank believes that the time has come for a private sector initiative, through which private banks throughout the world will develop and pledge to follow a set of "Best Practices For Combating Money Laundering."

We all know that money laundering activities create substantial reputational and legal risks for every private bank, and for the private banking business as a whole. These risks cannot be stopped by one institution or even by one country's laws and regulations. It is, therefore, in our best interest, as industry representatives, to act to establish uniform, global standards.

Global standards established through this initiative can help ensure that institutions with effective anti-money laundering efforts are not undermined by those who do not share this commitment. Global standards can also help ensure that the long-term fight against money-laundering will not be subject to short-term political concerns in any one country.

We believe that a set of "Best Practices" can be developed and adopted by private banks everywhere. To assist in that process, I have enclosed our view of the key elements of a "Best Practices" guide. As promised, I have also included a copy of the Citibank Private Bank's "Global Know Your Client' Policy and the recently revised Citigroup Anti-Money Laundering Policy. I hope you will find all three documents useful and that you will feel comfortable sharing relevant policies and standards from your organizations. By understanding how we each deal with the complex challenges of anti-money laundering we can all improve our efforts.

One final note. As you know, Shaukat Aziz has left Citibank to return home to serve as his country's Minister of Finance. His successor, Todd Thomson, has been involved in the formulation of our proposal for this private sector initiative. Todd Thomson has asked me to tell you that he will continue Shaukat's strong support for the development of international anti-money laundering standards for private banks, and that he looks forward to working with us on this important project.

Please feel free to call me to discuss any of the enclosed documents or our proposal. Thank you for your interest.

Sincerely,

Private banks, which provide specialized and sophisticated investment and other financial services to wealthy individuals and their families, are inevitably exposed to the risk that an unscrupulous client will attempt to "launder" the proceeds of illegal activities through the bank. Money laundering activities create substantial reputational and legal risks for every private bank, and for the private banking business as a whole. In addition, private banks as responsible citizens want to take all appropriate steps to assure that they are not inadvertently helping criminals by facilitating the movement of hinds derived from illegal activities.

In our global economy, where hinds move at the speed of electrons every hour of the day, and banks from all over the globe offer private banking services, it is prudent for all private banks to take appropriate protective momrts. Money laundering cannot be stopped by one institution or even by one country's laws or regulations, and thus for, government to government discussions have not resulted in a set of uniform international requirements for banks to follow in combating money laundering.

We believe that the time has come for a private sector initiative, through which private banks throughout the world will develop and pledge to follow a set of "Best Practices For combating Money Laundering Rusks." Global standards established through this private sector initiative can help ensure that institutions committed to anti-money laundering efforts are not undermined by institutions that do not share this commitment Global standards can also help ensure that the long-term fight against money laundering will not be subject to the short-term political concerns in any one country. We believe that a set of "Best Practices" can be developed and adopted by private banks everywhere.

We look forward to working with other private banks to develop a set of Best Practices For Combating money Laundering Risks that can be adopted by banks throughout the world.

October 28, 1999

Best Practices For Combating Money Laundering Risks include the following elements:

Committed Senior Management

- Senior management of the private bank establishes a culture that values and is committed to full compliance with the private bank's anti-money laundering program.

- Senior management of the private bank identify the bank's products and services that may be especially vulnerable to misuse by money launderers and establish special controls (including management review requirements) for the use of these products and services.

- Key Elements of effective Anti-Money Laundering Policies, Procedures And Systems

- Senior management's clear communication to all personnel of its commitment to the private bank's anti-money laundering program.

- "Know your client" procedures that apply to all clients of the private bank. Effective procedures verify the true identity of a client and the beneficial owners of all accounts as well as describe and confirm the client's sources of wealth.

- Sophisticated systems that monitor all transactions so that suspicious or unusual transactions relative to the client's known wealth or business are identified and information on the source of funds for such transactions is obtained in a timely way.

- Client confidentiality policies that do not hinder the "know your client" and transaction monitoring processes.

- Standards and procedures for determining when a client's transactions or activities should be reported to management and appropriate governmental authorities as suspicious,

- Strong compliance, control, risk management legal and audit transactions, each with clearly defined roles, responsibilities and accountability, to oversee and support the implementation of the anti-money laundering program.

- Regular training for private bank employees on money laundering activities and the bank's anti-money laundering program.

October 28, 1999

THE CITIBANK PRIVATE BANK
Private Banking Group
Global 'Know Your Client' Policy
September 9, 1997

Copyright 1997, Citibank N.A. All rights reserved.

THE CITIBANK PRIVATE BANK
Private Banking Group
Global 'Know Your Client' Policy
Table of Contents Page
Objective/Rationale I
Overview I
Scope
Policy
Client Acceptance Policy
Minimum Standards - Requirements for Client and Account
Holder Acceptance
Approval Policy for Public Figures 7
Minimum Standards for Public Figures 7
Approval Policy for Special Name Accounts 8
Minimum Standards for Special NAME Accounts 8
Approval Policy for Employee Accounts 10
Minimum Standards for Employee Accounts 10
Approval Policy for Non-Target Market Clients 10
Minimum Standards for Non-Target Market Clients 10
Approval Policy for Money Manager Accounts 11
Minimum Standards for Money Manager Accounts 11
Client Profile Policy 13
Minimum Standards - Ongoing Client Profile Requirements 13
Profile Requirements 14
Other Profile Responsibilities 15
Access to Profile Information 15
Transaction Monitoring Policy 17
Minimum Standards - Monitoring Process 18
Minimum Standards - Reporting 19
Monitoring of Cash Transactions 20
Reporting Cash Transactions 20
Monitoring for Structuring 20
Record Retention Requirements 21
Training 21
Policy on Roles and Responsibilities 22
Minimum Standards - Roles and Responsibilities 22
Exceptions from Minimum Standards 25
Deviations from Minimum Standards 25
Private Banking Group Global "Know Your Client" Policy Table of Contents Page
Appendices
A Identification Documents 26
B Confirmation of Due Diligence and Profile Procedures for Beneficial -17
Owners of PBG Managed Fiduciary Vehicles opened after September 30,1997
C Confirmation of Due Diligence and Profile Procedures for Beneficial 28
Owners of P.G. Managed Fiduciary Vehicles opened on or before
September 30, 1997
D Sources of Wealth - Sample Questions 29
E Sources of Funds - Statement Examples 31
F Confirmation of Due Diligence and Client Profile Procedures 32
G Opening Document Notes: Sample1 33
H Opening Document Notes: Sample 2 33
I Approval Requirements for ' KYC' Policy 35
J KYC Client Profiling Requirements 36
Glossary 37

@ Copyright 1997. Citibank N.A. All rights reserved.

THE CITIBANK PRIVATE BANK
GLOBAL "KNOW YOUR CLIENT" POLICY

OBJECTIVE/RATIONALE

The primary objective of this policy is to establish a set of global minimum standards for knowing and documenting the clients and account holders of the Private Banking Group (PBG). This will enable PBG bank and staff to:

- Ensure compliance with the United States and applicable local money latindering laws and regulations, and the Citicorp Global Anti-Money Laundering Policy

- Ensure that PBG employees adhere to PBGs 'Know Your Client' Policy and that the PBG does business with clients who are reputable and whose legitimacy can be determined

- Protect the PBG from being used for money laundering activities

- Protect the good name and reputation of the PBG and Citicorp

- Ensure that PBG employees advise appropriate levels of management if they detect suspicious or criminal activity, so that a required reports are made to govenunental authorities and appropriate action is taken.

OVERVIEW

The policy covers four areas:

- Client Acceptance. It is critical that the PBG initiate and maintain relationships with clients and account holders whose true identity is known, whose source qf wealth, source of funds, and business are legitimate, and who use the PBG appropriately. The process of selecting the right client is critical at the initiation of the relationship. This policy addresses the minimum standards that must be met before a relationship can be established or an account can be opened. It also establishes special criteria for approval of accounts for public figures, Special Names, PBG employees, non-target market clients, and Money Managers.

- Client Profiling. The profile requirements for different types of clients and account holders are established. It also determines who can have access to the profile information.

- Transaction Monitoring. This policy establishes the process for monitoring and reporting the movements of fimds into and out of accounts. It also establishes the record keeping and record retention requirements for monitoring cash transactions. It outlines the anti-money laundering training requirements for the PBG.

- 'Know Your Client' Roles and Responsibilities. This policy defines the responsibilities in the 'Know Your Client' process for staff who have contact with a client, account holder, or related party.

SCOPE

This policy is applicable worldwide for all activities and in all locations of the Private Banking Group (PBG).

POLICY

All PBG business units must establish and maintain a formal 'Know Your Client' process for accepting, maintaining, and documenting clients and accounts, according to the standards below.

CLIENT ACCEPTANCE POLICY

The client profile must confirm that the client/account holder his met the following minimum standards prior to acceptance.

All approvals described below can be adapted to equivalent levels in the different market regions.

Minimum Standards -.Requirements for Client and Account Holder Acceptance

Target Market. A client must meet the target market definition of the PBG. For exceptions, see Standards 25-27.

Identity of the Client/Account Holder. The true identity of a client/account- holder must be determined, verified, and documented. Before the relationship may be established, a prospect must provide consistent and satisfactory information in substantiating his identity and character.

2.1 Supporting documents on the client must be maintained on file. (Refer to PBG Front End Policy.)

Samples of acceptable identification documents are in Appendix A.

2.2 Contact information must be obtained and documented.

2.2.1 At a minimum, information must be recorded on the client's/account holder's legal name, primary residence address for individuals and principal place of business address for entities, telephone, and nationality.

2.3 Beneficial Owners. The minimum 'Know Your Client' standards must be met for Private Investment Companies (PICs), trusts, and similar fiduciary vehicles. In addition, however, beneficial owners of such vehicles must be identified and profiled.

2.3.1New accounts (opened after September 30, 1997)

2.3.1.1 When a new PBG account is opened in the name of a Private Investment Company (PIC), trust, or similar fiduciary vehicle, the beneficial owner(s) must be identified at each Booking Center holding an account for the fiduciary vehicle and at the PBG entity which manages or administers; the fiduciary vehicle if applicable. Each such Booking Center must also maintain a ,full profile on the beneficial owner(s) of the fiduciary vehicle except as provided in Standards 2.3.1.2 and 2.3.1.3 for non-U.S. Booking Centers.

2.3.1.3 Where a Due Diligence Confirmation in the form of Appendix B is acceptable under local law or policy applicable to the non--U.S. Booking Center holding an account for the fiduciary vehicle, such Booking Center is permitted to hold Basic Information and a current Due Diligence Confirmation in lieu of a full profile on the beneficial owner(s).

2.3.2 Existing accounts (opened on or before September 30, 1997)

2.3.2.1 for accounts of PICs, trusts, or similar fiduciary vehicles managed or administered by the PBG, the Booking Center must obtain a Due Diligence Confirmation in the form of Appendix C or a full profile on beneficial owner(s). The Due Diligence Confirmation must be obtained from the PBG entity that manages or administers the fiduciary vehicle by October 31, 1997.

2.3-2.1.1 If Due Diligence Confirmations or full profiles cannot be obtained by October 31, 1997, the Booking Center must submit a list of such accounts to its Market Region Head and Regional Compliance and Control Head for review by October 31, 1997. They will decide whether to provide additional time to obtain the required information or to terminate an account.

2.3.2.2 For accounts of PICs, trusts, and similar fiduciary vehicles not managed by the PBG, the beneficial owner(s) must be identified and full profiles obtained.

2.3 -2-2.1. 1 If identification and full profiles cannot be obtained by October 31, 1997, the Booking Center holding such accounts must submit a list of the accounts to its Market Region Head and Regional Compliance and Control Head by October 31, 1997. They will decide whether to provide additional time to obtain the required information or to terminate an account.

2.4. Due Diligence Confirmations for Beneficial Owners (Appendices B and C) must be signed by the head of the PBG entity that manages or administers the fiduciary vehicle. For example.- The Managing Director of Cititrust (Bahamas) Limited.

3. Source of Wealth. Detailed information on a client’s/account holder's economic activities must be obtained to support net worth and income level prior to opening an account. The source of wealth should be wholly legitimate and sufficient to account for the size of relationship with the client

3.1 Source of wealth information must include, as applicable:

3.1.1 Ownership of and/or a client's relationship to his primary businesses

3.1.2 Names of partners and the nature of their involvement mi the business, where appropriate

3.1.3 The business' lo and geographic trade areas

3.1.4 Details of other sources of wealth.

This information should be documented over time by a call report or a plant or office visit, annual financial reports, third party confirmations, newspaper clippings, marketing brochures, or other reasonable information sources.

Sample questions for determining and documenting sources of wealth are in Appendix D.

4. Source of Funds. Source of funds refers to the origin and the means of remittance by which funds are sent to the PBG. Examples of sources of funds are: incoming funds from the sale of a private business or property, and a liquidation of a financial investment at another institution that is remitted to the PBG.

4.1 The source of funds for the initial account opening must be identified and documented.

4.2 The source of significant additional funding to the account needs to be identified and documented. The transaction monitoring process is key to identifying significant additions of funds to client accounts.

Samples of Source of funds statements are in Appendix E.

5 opening Diary -Note (ODN). A written summary is required that explains 'wh, the prospect should be accepted as a client of the PBG-

5.1 The ODN must include information on:

5.1.1 How a client was sourced

5.1.2 How a client plans to use his relationship

5.1.3. Identity of the joint account holders and related account holders. if an% to a client or entity that heads a client relationship

5.1.4 Details of a client's business background, source of wealth, and initial source of funds.

5.2 The ODN must demonstrate how this information has been obtained.

5. 3 The ODN must remain in the profile as a permanent document. The ODN is the only part of a profile that will not be updated on a continuing basis.

5.4 The ODN applies to clients/account holders acquired after September 30, 1997.  The ODN is not required for existing clients. Examples of Opening Diary Notes are in Appendices G and H.

6. References. To check the integrity and character of the prospect, two references are required and must be documented in writing. References= generally should contain a description of the capacity in which the referral party knows the prospect.

References may be obtained from Citicorp officers (Assistant Vice Presidents and above), clients in good standing, a bank, and external sources that are acceptable to the Global Market Manager (e.g., prospect's business associates, lawyers, or accountants).

6.1 References are required for joint account holders who are not nuclear family members

6.2 References are required for related account holders, including individuals, corporations, and non-Citicorp managed vehicles.

6.3 All references must be received before accepting a client.

6.3.1 Exception: Bank references must be received within 90 days after the account is opened.

6.3.1.1 If the bank references are not received within 90 days, all account transactions must be approved by the Global Market Manager or Investment Center Head

6.3.1.2 If the bank references are not received within 120 days~ the account will be closed.

6.4 When a PBG client is referred by or opens an account in another Client Center or Booking Center, additional new references are not required. The client's Private Banker in the referring jurisdiction must provide a written internal introduction. supported by a description of the existing relationship or other explanatory information about the client-

6.5 If a non-PBG client of Citicorp (for example, a G.C.B. customer) is transferred (not referred) to the PBG, a written internal reference with supporting documentation from the referring unit will satisfy the reference requirement as long as the referring unit confirms in writing that their KYC criteria have been met.

7. Approvals. Upon the satisfactory completion of the above standards, a prospect, including joint account holders and related account holders, should be submitted by the Private Banker to his supervisor, and the Global Market Manager for the country where the client is domiciled, for approval.

7.1 If the domicile country of a client/account holder is not the same as the country in which the new client/account holder relationship will be opened (the Booking Center), the Booking Center Head (usually the Investment Center Head) must also approve the acceptance of a client/account at that location.

7.2 Exception: For relationship/accounts opened in Switzerland or Luxembourg, the Market Region's representative in Switzerland/Luxembourg for the prospect's domicile may approve the acceptance of the client/account holder in lieu of the Global Market Manager.

For example: If a client whose domicile is Venezuela wants to establish a relationship in' Chile, then the Venezuelan Global Market Manager and Chilean Booking Center Head must approve the acceptance of the client. If the same client opens an account in London, the Investment Center Head in London must also approve the opening of the London account.

7.3 During periods of absence or unavailability, a Global Market Manager or Booking Center Head/Investment Center Head may temporarily delegate approval authority.

8. Prospects cannot be accepted if they are governments, individuals, entities, or those acting on their behalf, whose name or business appears on the list of Specially Designated Nationals (SDN) promulgated by the Office of Foreign Assets Control (OFAC) or who am prohibited by U.S. sanctions.

8.1 Market Region Heads must establish an ongoing process to ensure that clients/account holders are not on the SDN list, which is revised from time to time, as well as a process to prevent or block clients/account holders from transacting with entities or individuals on the SDN list or prohibited by U.S. sanctions.

Approval Policy for Public Figures

A public figure is a government official, senior executive of a government owned corporation, military 9fficer, politician or related family member or close associate of the public figure. This definition includes any individual who occupies, recently occupied. advises, or is actively seeking or is being considered for a senior position in the government political process, or government owned corporation, or military of a country state, or municipality. Market Region Heads may decide to broaden the definition of a public figure to include individuals with high public profiles.

Minimum Standards for Public Figures

9.  For accounts opened after September 30, 1997, the Private Banker is responsible for identifying prospects who are public figures to the PBG officers who must approve acceptance per Standard 7. Additionally, prospects who are public figures must be identified to the Market Region Head for the prospect's domicile for approval prior to acceptance, or in the case of existing clients/ account holders, when the client/account holder becomes a public figure.

9.1 A public figure will be accepted as a client/account holder of a secrecy jurisdiction only if the client/account holder has authorized disclosure of client information to the. extent necessary to obtain the required approvals per Standards 9-12.

Note: Public figure clients accepted after September 30, 1997 may not be isolators.

9.2 The Opening Diary Note (ON) must clearly describe the circumstances that makes a prospect a public figure.

10. In addition to approvals required by Standards 7 and 9, the Private Banker must notify the following for public figures prior to acceptance.

10. 1 For non-U.S. prospects or clients: . the Country Corporate Officer for the Booking Center's country.

10.2 For U.S. prospects or clients: the Corporate State Officer for the state where the account is booked

10.3 The Market Region Head for the Booking Center (if different from the prospect's domicile).

11. After acceptance, the Global Market Manager will ensure that the names of public figures for his country are reviewed annually, or as events dictate necessary, by the PBG Regional Compliance and Control Office.

12. After acceptance as a public figure client. the PBG Group Executive, in consultation with the Market Region Head representing the client's domicile and the Market Region Head of any Booking Center where the client holds PBG accounts %;ill review the existing public figures annually, or as events dictate necessary, to identify and analyze changes in client status and relationship with the PBG in order to

12.1 Ensure that the retention of existing public figures continues to be appropriate

12.2 Approve the PBG's termination of a relationship

12.3 In the event that the PBG files a Suspicious Activity Report (per Standards 48 and 49) with regard to a public figure client, the PBG Group Executive and relevant Market Region Heads shall be advised promptly and a review per this Standard initiated.

Approval Policy for Special Name Accounts

A Special Name account is an account using a pseudonym or number established as an accommodation for a client/account holder. Special Name accounts should not be marketed as a core PBG service and will only be permitted in the case where a client/account holder has legitimate reasons to request this service (for example, personal security, or concerns about undesirable publicity). In considering whether to approve a client's/account holder's request for a Special Name account, consideration should be given to whether such accounts are customary market practice in the location where the account will be held.

Minimum Standards for Special Name accounts

13. For accounts opened after September 30, 1997, except as provided in Standard 13. 1. clients requesting a Special Name account must authorize disclosure of client information to the extent necessary to obtain the approvals required by this policy and Standard 7.

13.1 If an account is being established in Switzerland or Luxembourg, the market region's designated representative in Switzerland or Luxembourg of the prospect's or client's domicile may approve the opening of the Special Name account in lieu of obtaining the approval of the Global Market Manager for the client's domicile.

13.2 The Opening Diary Note must clearly describe why the account should be given a Special Name. (For Example: For personal safety reasons, the client wants additional confidentiality.)

14. The laws of the country where the account is located must not prevent the use of

Special Name accounts.

15. The Private Banker must advise a client/account holder, in writing, that

15.1 The use of a Special Name account provides only limited rights

Example: omission of a client's or account holder*s name during internal dealings between employees who have no need to know the client's name.

15.2 The real name of the owner(s) of the account must be maintained an file at the location where each account is held, but may be kept separate from the account profile and files.

15.3 The Bank will release account information, including the identity of the account owner, as required by law.

16. A client’s/account holder's written consent to the disclosures required by this policy must be obtained as part of the account opening documentation, or at any time that an account is changed to Special Name status.

17. The Private Banker must maintain a record of all Special Name accounts held by a client.

18. After acceptance, the Global Market Manager for the client's domicile will

18.1 Ensure that the Special Name accounts are reviewed annually, or as events dictate necessary, by the PBG Regional Compliance and Control Office.

18.1.1 For accounts opened after September 30, 1997 in Switzerland and Luxembourg, the review can be done by the Local Compliance and Control Office.

18.1.2 For accounts opened on or prior to September 30, 1997, if the -client has not authorized disclosure of the account outside the Booking Center and the Client Center, the compliance review can be done by the Local Compliance and Control Office.

19. The Global Market Manager will review the Special Same accounts annually, or as

events dictate necessary to identify and 'analyze changes in client status and relationship with the PBG, in order to

19.1 Ensure that the retention of existing clients continues to be appropriate

19.2 Approve the PBG's termination of the relationship of a client

19.3 If the PBG files a Suspicious Activity Report per Standards 48 or 49 with regard to a Special Name account, the Market Region Head for the client's domicile and the Booking Center (if different) shall be advised promptly and a review of the client/account holder per standard 19 initiated.

20. In the case of Special Name accounts in Switzerland, the market region's Swiss representative for the client's domicile may fulfill Standard 19 and the EMEA Market Region Head will fulfill Standard 19.3. In Luxembourg, the Country Corporate Officer will fulfill Standard 19, including 19.3. Approval Policy for Employee Accounts

An Employee account is an account for a PBG employee or a relative of a PBG employee. An employee may not book accounts in a secrecy jurisdiction that is not his home country, unless he has signed a disclosure authorization.

Minimum Standards for Employee Accounts

21. The Private Banker is responsible for identifying accounts of PBG employees or relatives of PBG employees when requesting his supervisor's and Global Market Manager and/or Investment Center Head approval per Standard 7 prior to acceptance.

21.1 The Opening Diary Note must clearly describe why the account should be accepted by the PBG.

22. To avoid any potential conflict of interest, PBG employee accounts must be administered by a Private Banker not related to the account holder.

22.1 A PBG employee may not in any way influence the activity of his accounts and those of his relatives.

23 - After acceptance, the Global Market Manager will report the names of accounts of employees or relatives of PBG empl3yees to the PBG Local Compliance and Control Office.

24. After acceptance, the Global Market Manager will review annually the accounts of PBG employees and of relatives of PBG employees to identify and analyze changes in client status in order to

24.1 Ensure that the retention of existing clients/account holders continues to be appropriate

24.2 Approve the change of status of PBG employees and relatives of PBG employees, and/or the PBG's termination of a relationship.

Approval Policy for Non-Target Market Clients

Minimum Standards-Non-Target Market Clients

25. For accounts opened after September 30, 1997, the Private Banker will identify non--target market clients/account holders when requesting his supervisor's and Global Market Manager's approval to acceptance.

25.1 The Opening Diary Note must clearly describe why this account should be accepted by the PBG.

26. [RESERVED]

27. The Global Market Manager will review annually the non-target market clients/ account holders to ensure that their retention continues to be appropriate.

Approval Policy for Money Manager Accounts

As the term will be used here, Money Managers are PBG clients who manage funds for other individuals or entities. These individuals/entities are clients of the Money Manager and Beneficial Owners of funds the Money Manager deposits or invests with or through the PBG. The 'Know Your Client' requirements that are applicable for Money Managers have a different set of standards.

This policy does not apply to Money Managers1financial advisors who manage client relationships (on a discretionary or non-discretionary basis) where the PBG account is held in the name of the Beneficial Owner rather than the Money Manager. In such cases, the client/account holder, instead of the financial advisor or Money Manager, requires a full profile.

Minimum Standards for Money Manager Accounts

28. Effective December 31, 1997 (except as provided in Standard 29), Money Managers are fully subject to the minimum standards of PBG's 'Know Your Client' policy, including the additional standards here (Standards 28 - 30).

28.1 The Opening Diary Note must clearly describe why the account should be accepted by the PBG. - .

28.2 The Money Manager must provide adequate written assurances that his clients are reputable and evidence that he has a KYC process in place that is sufficient to meet the standards/guidelines to be issued by PBG Group Compliance and Control.

28.2.1 The Money Manager must agree that it will permit the PBG to periodically review and test its KYC process and, on request, will provide any information necessary to assure the PBG of the adequacy of the KYC process.

28.3 In cases where a Money Manager establishes an account(s) with the PBG in the Money Manager's name or in a company or other Special Name account, if the account represents the funds of a sing,': individual or a group of related parties (e.g., family group), then

28.3.1 The identity of the beneficial owner of the funds must be disclosed the to the PBG, and

28.3.2 The Money Manager must provide a partial profile on the beneficial owner.

28.4 In cases where a Money Manager establishes an omnibus account - an account combining the funds of two or more unrelated parties - the Money Manager must provide to the PBG the name and primary residence address on each beneficial owner whose funds are held in the omnibus account to the PBG so that the PBG may review the names for SDNs (per Standard 8).

28.4. 1 The Money Manager must agree that once the account is established, he will promptly notify the PBG of the addition of new beneficial owners and provide the name and address.

28.4.2 Information on the identity of clients of the Money Manager must be maintained on file at the Booking Center b