London Banker’s Arrest Sparks 6-Year Fight With Citigroup and the Taxman

(Bloomberg) -- Mukarram Sattar, one of Citigroup Inc.’s longest-serving employees, was at home on a July morning in London six years ago when officers and agents from the U.K. tax authority showed up to arrest him.

The arrest of the senior executive -- Sattar was global head of the bank’s treasury and trade solutions operations -- on suspicion of tax fraud in the summer of 2013 sparked a lengthy legal ordeal that continues to this day. While the criminal probe was dropped without charges being filed, the battle still includes an employment lawsuit, and most recently, an attempt by Citigroup to claw back $1 million from his pension.

Many of the allegations in his dispute with Citigroup center on Sattar’s use of the bank’s internal payment systems between 2008 and 2011 to move thousands of pounds from a charity he controlled, according to a ruling in the employment case. Sattar was fired for gross misconduct after Citigroup determined that the executive improperly transferred the charity’s funds, once to meet an urgent cash call, and on another occasion to pay off two credit cards belonging to his nephew.

Sattar’s “length of service, seniority and experience should have made him aware of the potential for these transactions to appear improper and that, in effect, he should have known better,” a judge said, citing a senior Citigroup executive during the employment lawsuit.

Despite widespread media speculation about the “senior London bank executive” arrested by British tax authorities in 2013, Sattar’s identity was largely a mystery until a court hearing in London last month in the Citigroup pension fight. While officials at Her Majesty’s Revenue and Customs declined to comment, the events of the last six years can be pieced together from court filings and a pair of little-noticed rulings from the employment tribunals.

The two investigations focused on different things. The tax probe looked at Sattar’s personal financial affairs. Citigroup’s internal investigation, triggered by Sattar’s arrest, then looked at his use of internal systems to process some of the transactions that the government was reviewing.

The tax authority dropped its criminal probe into Sattar’s affairs after a “thorough investigation,” Sattar’s lawyer, Linky Trott, said in a statement. The probe has been downgraded to a civil case and is still ongoing, according to a person familiar with the investigation.

Sattar has maintained that there was nothing improper about the transactions and has taken the employment suit to the Court of Appeal later this year after losing at two tribunals, his lawyer said.

British Charity

Sattar started working at the bank in 1975 and by July 2013 oversaw 15,000 staff in a department that transferred more than $3 trillion around the world every day. But it was his role with a British charity that caused investigators concern.

The executive founded and was the sole donor to the Unheard Voices Trust (UVT), a charity that awarded scholarships and other allowances to students including those in south Asia, and gave as much as 4.5 million pounds ($5.4 million) to it.

A week after his arrest, Sattar told managers at the bank that he was confident his use of Citigroup’s fund transfer process was “watertight” and that HMRC would be comfortable once he explained it to them.

But Citigroup saw it differently. The transactions appeared “complex and multilayered,” the bank wrote in a letter to Sattar, and “seemed to be made with the intention of concealing the distribution of funds from the original source.” By moving funds this way, not even UVT’s own bankers at Lloyds Banking Group Plc would be able to see the charity’s beneficiaries.

Sattar disagreed, calling the bank’s attempt to investigate an “utter abject failure.” The bank had a “hysterical response” to these transactions, he said in a filing.

Three transactions from the UVT came under particular scrutiny. In each case, Citigroup’s lead investigator, Derek Bandeen, said that Sattar should have had permission from a manager even more senior than himself.

Capital Call

In the first, Sattar wrote a check for 15,000 pounds from UVT’s account, which was then deposited into his U.S. Citigroup account to meet a capital call. Sattar said in response that it was a short-term loan that needed to be paid within 24 hours and the funds were repaid to the charity before the end of the financial year.

A year later in 2009, another check from UVT was deposited at a Citibank branch in New York to settle the debt on two credit cards belonging to Sattar’s nephew. The executive also pressured a junior employee to negotiate a favorable settlement figure for the debt, the employment judges said, citing testimony in the case.

Sattar had an “aura” about him and a “reputation for management by fear,” one staffer said, according to the employment tribunal judgment. Sattar said the transfer was a donation by the trust and was part of UVT’s support for his nephew’s education.

The third transaction from August 2011 involved a payment of 12,500 pounds from UVT to Sattar’s Citigroup account in Pakistan before being routed to another charity called the Fakir Trust. A year earlier, Sattar had told a compliance official that the Pakistan trust was his family trust. Sattar said that the other trustee was aware of the donation and moving the funds in this way ensured he’d receive a foreign exchange receipt required for Charity Commission reviews.

Testifying at Sattar’s employment hearing in 2016, Bandeen said he would struggle to think of a transaction as unusual as the one where Sattar sent a British charity’s funds “to a U.K. bank, transferred it to Pakistan, then out through a personal account, transferred it into another currency and finally out to another charity based in Pakistan.”

Very Different

While Citigroup had approved Sattar’s personal involvement in the charity, it hadn’t signed off on his use of its systems for the charity’s benefit.

“The two are very different,” the employment judge said.

In each case, Sattar relied on the bank’s staff transfer process, an internal payment system used by employees to move personal funds. He said he was treated differently from dozens of others who used the system to make payments to overseas accounts, including a manager even senior to him in the U.K. who used the system to transfer funds to Colombia to pay a developer to buy his nanny a house.

Citigroup said in a statement that Sattar is “repeating allegations that were investigated by Citi at the time, and no transactions, by any other employee were found to be improper.”

Shortly afterwards, the bank stopped its employees from using the internal payment systems to transfer funds for personal reasons.

Sattar was dismissed in September 2013, about two months after the HMRC arrest. The civil probe is concerned with various tax benefits that Sattar accrued through his investments, the person said, asking not to be identified because the discussions are private. HMRC said it wouldn’t comment on individual taxpayers.

Now, the firm is seeking to take back part of Sattar’s pension. Citigroup wants to retrieve nearly 800,000 pounds paid to Sattar as part of a July 2011 agreement, Judge Edward Murray said last month in London. Citigroup paid Sattar $2.6 million on that date, the employment judgment shows, and Sattar in turn donated the majority to his UVT charity before claiming a tax rebate.

Hospital Construction

Sattar “vigorously denies the claim,” according to his legal filing. The key clause in the pension agreement that Citigroup is relying on is “void and unenforceable.”

“All of those funds, to the knowledge of Citi, were transferred to the Fakir Trust, which has in turn supported the construction of two hospitals including a dialysis center treating 600 people daily in Karachi,” Trott said.

The Citigroup suit comes even as Sattar struggles with serious health issues. He’s been facing surgery, another lawyer for the former banker, Alexander Robson, said in court. For its part, Citigroup’s lawyers said the litigation should happen as soon as possible, and that if it was causing undue stress, it would be better to get on with it.

Further court orders were delayed by the judge, leaving the legal fight to continue.

To contact the reporter on this story: Jonathan Browning in London at jbrowning9@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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