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Citibank's $900 million mistake: How the 'biggest banking blunder' unfolded

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Citibank's $900 million mistake: How the 'biggest banking blunder' unfolded


Citi was supposed to make a payment of nearly $8 mn or Rs 58 cr and attributed the blunder to human error.

Citibank's $900 million mistake: How the 'biggest banking blunder' unfolded
Citibank's lawsuit seeking a full refund of an accidental payment of about $900 million or Rs 6,554 crore to Revlon’s lenders last year has drawn a blank. A US District Court judge has ruled that the bank cannot recover that amount, terming it as "one of the biggest blunders in banking history".
Citi, acting as the loan agent of cosmetic company Revlon, had wired the amount to the latter's lenders to pay off a loan that was not due until 2023. It was supposed to make a payment of nearly $8 million or Rs 58 crore and attributed the blunder to human error.
The worried bank then knocked on the court’s doors, seeking a full refund of the amount mistakenly wired. Some of the lenders returned the money that they had received, barring 10 asset managers who refused to pay back, prompting the bank’s lawsuit to reclaim an estimated amount of $500 million or Rs 3,629 crore. Citigroup had argued that the lenders should return the money since they were aware that the transfer was a mistake and that Revlon couldn’t afford the payment.
US District Judge Jesse Furman in Manhattan said wire transfers to the lenders were "final and complete transactions, not subject to revocation", reported Reuters. A Citigroup spokeswoman has said the bank intends to file an appeal.
Wrong transfers do not usually happen since banks have stringent procedures to ensure that a fund transfer is approved by the sender and recipient details such as account numbers and IFSC codes are properly submitted. The amount is also verified before a transaction is initiated, and the sender issued an acknowledgment receipt following the completion of a transfer.
However, there are rare cases where accidental money transfers happen either due to a bank's error, just like it happened with Citbank, or on the customer's part. Back in 2012-13, a leading PSU bank in India had erroneously distributed interest payments to several accounts, but the transactions were reversed right after the mistake was identified. Fortunately, the mistake occurred late in the evening and was fixed before the bank opened the next morning.
In case a bank does end up making a wrong transfer, it immediately begins its standard operating procedure. The bank notifies the wrong recipient about the unintended transfer and requests a transaction reversal urgently. If the recipient refuses to give back the amount, the bank can resort to legal measures such as filing a police complaint or a court petition.
If the mistake happens on the part of a customer and money is sent to the wrong beneficiary, the onus is on the customer as the bank was merely following instructions. The aggrieved customer can approach the wrong beneficiary to request reversal of the amount and can seek legal recourse in case of non-cooperation.
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