The Citi That Always Sleeps

As anyone who does business internationally can appreciate, transferring funds from one country to another can sometimes be a real odyssey. Even with sophisticated computers, there is no guarantee your money will arrive in the specified account, bank — or even country.

That is largely because the process of “wiring” money from, say, Europe to the United States has fundamentally not changed much in the last one hundred years, despite automation and global financial telecommunications networks like “SWIFT.”

Recently hearing about one small company’s difficulties with U.S. banking giant Citibank, we now realize what a misnomer “SWIFT” is for this transfer network. Working for customers based around the globe, this company receives most of its payments from clients in the form of wires sent directly to its local Citibank branch. The arrangement was evidently very satisfactory — that is, until two years ago, when the occasional wire failed to reach its accounts.

Desperately looking for the missing money, the company’s accountant stumbled onto an unsettling and stunning truth: the company’s account number was identical to that belonging to a woman in New York City. From time to time, her account was credited with a deposit intended for the company — and she had received them quite happily.

Now, considering that Citibank assigns an eight-digit series of numbers to accounts, that means the bank has at its disposal exactly 100 million account numbers. Even considering its colossal size after merging with Traveler’s, it is difficult to imagine that Citibank has that many customers.

In the world that supposedly never sleeps, as Citi’s slogan goes, it seems to us that Citibank’s routing failures must be among the easier problems to solve. For instance, why not encode a “flag” in the payment processing software to ensure what’s meant to go to Washington does not inadvertently end up in New York City?

Even without such a feature, it is surprising that wires could be so even these things should never cause much of a problem. After all, every account number is accompanied by an ABA routing number, which identifies the bank where the account is located.

Sadly, banks still make mistakes. While the company whose money Citibank had lost waited for it to be found, Citibank explained that its wire department in New York City sometimes ignores the routing number. Just like that, the company’s funds ended up at Citibank, N.A., in New York.

It turns out that, all along, the company had not been a customer of “Citibank, N.A.,” but rather of “Citibank, F.S.B.” — a Federal Savings Bank owned by Citigroup, a holding company that owns both Citibank, N.A., — a federally chartered National Association bank permitted to operate in the State of New York — and a host of smaller Citibank, F.S.B.’s, units operating outside New York.

Who to blame for the confusion? Look no further than a 1927 act of Congress, the so-called McFadden Act. Back then, Congress made it illegal for a bank to operate in more than one state. To get around this law today, banks now operate as a holding company and a series of similarly-named, but legally separate state banks or savings and loan organizations. Hence the difference between “Citibank, N.A.,” and “Citibank, F.S.B.”

Once the bank’s error had been discovered, the company quite reasonably expected Citibank to restore its missing funds without delay. Instead, Citibank promised to credit the money to the company’s account only after the bank’s perfunctory two-week internal investigation.

By keeping this company’s money in this uncertain limbo, Citibank received what amounted to an interest-free loan from the company. It is a case of bitter irony — that such a small company became a banker to the world’s mightiest bank.