Citi - the world's largest bank in terms of market capitalisation - was found to have violated the "know your customer" rules laid down by RBI to curb money laundering. The rules are designed to keep tabs on depositors and the nature of the money being deposited.

When contacted, the Citigroup spokesperson said, "A sole proprietor account was opened in normal course in March '00. RBI raised a query on the account in July '02, post which, it was understood that the same belonged to an associate of Telgi. The bank has co-operated fully in all the related investigations with the RBI." The Citigroup official refused to comment on RBI's action.

"As per policy, we have no comments to offer on the outcome of a regulatory investigation," she said. Banking sources think that Citi could well be the first bank to be hauled up by RBI in this connection. Chances are that some other banks may also be asked to explain their links with Telgi, the printer of fake stamps.

Telgi and his associates had used multiple accounts with various banks to park and withdraw money. Earlier this year, a team from RBI began shadowing the Telgi money trail and had asked several banks to furnish copies of account opening forms, cheques, photographs of account holders and other documents pertaining to a number of suspicious accounts. Citi is understood to have had frozen the particular "proprietor account" in July '02.

Telgi and his men needed banks to encash the cheques they received from selling fake stamps. Unlike other vendors of stamp papers who accepted only cash, Telgi was comfortable with cheques.

Telgi was first arrested (and later released) in 1997. But several of his accounts with banks were functional even as long as eight months after his arrest in October '01. Most of the money had flown out of these accounts by mid '02, when RBI directed banks to block the accounts.

RBI's action adds to the bad spell that Citi is going through. Last month, Japan's financial services agency told Citi to shut down its private banking arm, accusing the bank of selling securities at "unfair" prices. More recently, Financial Supervisory Service - South Korea's markets watchdog - said it is probing Citi. And in August, some European regulators had put Citi under the lens for, what they alleged, were the bank's sharp bond trading practices.

Though the Telgi story adds to Citi's run-ins with yet another regulator, it may have a small impact on the bank's operations here. But it comes at a point when, in a recent internal communiqué to employees from the bank, CEO Charles Chuck Prince III, said, "Citigroup's culture must be synonymous with integrity."