Citigroup in Hot Water Due To Insufficient Background Checks

Citigroup Lands Themselves in Hot Water With 3 Criminal Hires Due To Insufficient Background Checks

Last updated on May 10, 2021

There are all sorts of reasons for carrying out a background check on someone but the recent fiasco at Citigroup just gave employers nationwide a serious wake-up call.

Citigroup’s alleged failure to “conduct timely or adequate background checks” is going to cost more than just a few employees their jobs. In fact, it’s going to cost Citigroup a cool $1.25m and yet another run-in with the Financial Industry Regulatory Authority (FINRA).

As a multinational financial services company and investment bank, Citigroup is required to adhere to both federal security legislation and federal banking laws when recruiting. These regulations mean that all potential employees should be fingerprinted to ascertain their suitability and ensure that no individual who is subject to a statutory disqualification enters the company’s employ.

According to FINRA, there were around seven long years during which Citigroup’s recruitment and background checking processes left a lot to be desired. Over the specified period, FINRA estimates that around 10,400 non-registered persons associated with Citigroup slipped through the cracks after Citigroup failed to perform satisfactory background checks on them.

Between January 2010 and May 2017, a further 520 of those non-registered associated persons were not subject to a fingerprint test, making it impossible for the company to know whether or not they were subject to statutory disqualification. As a result of these inadequate processes, three convicted criminals were employed by Citigroup, leaving investors vulnerable to potential crimes and their associated losses.

Given some of the past experiences that have haunted Citigroup, you’d expect it to be a little more stringent in its hiring processes. In 2011, a Citigroup employee was arrested after allegedly stealing $19 million from the bank in what was called “the ultimate inside job”. That would surely motivate most big businesses to be a little more careful about who they associate with and more than a little more thorough with their background checks.

Although Citigroup has neither denied nor admitted to the charges, they have consented to the validity of FINRA’s findings which is arguably much the same as admitting to the charges.

FINRA’s Findings, Citigroup’s Loss

FINRA’s findings revealed that Citigroup had failed to maintain the correct procedures for screening individuals becoming associated with the firm in a non-registered capacity. What that means is, according to FINRA, “any person engaged in the investment banking or securities business who is directly or indirectly controlled by a FINRA member”. As for the statutory disqualification, an individual can be disqualified from association with any FINRA member company as a result of the following:

  • Felony criminal convictions that took place in the last decade
  • Judicial orders of any age involving unlawful investments
  • Suspensions or expulsions from self-regulatory organizations
  • Bans ordered by the Commodity Futures Trading Commission (CFTC) and the Securities Exchange Commission (SEC)
  • Any evidence or findings that indicate the individual made false statements in any proceedings involved self-regulatory organizations or the SEC
  • Any State authority orders that bar an individual from being involved in securities, savings, banking, insurance, or credit union activities

There are few more besides but they’re so steeped in legalize, we’re going to leave them to the professionals.

It’s not only employee screening that sometimes proves inadequate either. A little over a year ago, the FBI was in similar hot water as Citigroup after a convicted felon with a history of mental issues was given the go-ahead to purchase two handguns.

So, what’s all that got to do with you? Well, it serves to remind us just how important background checks are and how vital it is to use a reputable company that’s going to dig deep enough for you to get the bigger picture.

What is an Employee Background Check?

A background check on a potential employee is fundamentally the same as one a private individual can conduct online with a company such as TruthFinder or BeenVerified. The only real difference is that an employee background check must be performed by a Consumer Reporting Agency approved under the terms of the Fair Credit and Reporting Act.

Much of the information gleaned from such a background check is also available with an online background check company, you just can’t use the latter legally to ascertain an individual’s suitability as a potential employee.

An employee background check will investigate various aspects of an applicant’s life, from their employment history and academic performance to any criminal convictions or traffic violations they have against them.

While it’s not necessarily illegal to employ someone with a criminal record, it could negatively impact on the working environment, the level of trust amongst colleagues, and the company’s reputation. Certain industries, like financial securities, are obligated to perform criminal background checks to identify any disqualified persons, so, as in the Citigroup incident, failing to perform those checks with enough stringency, could land you on the wrong side of the law and facing a hefty fine.

Just remember, an online company like People Looker isn’t an accredited CRA so if you do use such a service to perform a background check, make sure you’re doing it for the right reasons and according to FCRA legislation.

Inadequate Background Checks and Their Consequences

Citigroup has paid for its failings in one sense by handing over $1.25m to FINRA, but there are other ways a bad hire can affect a company.

1. Financial Impact

Although research indicates that many companies believe that hiring the wrong person for a job doesn’t have any negative financial impact, quite the opposite is true. According to the Department of Labor, recruiting the wrong person for a position will cost an employer around 30% of that employee’s first year’s salary. Other estimates suggest it costs between $7,000 and $40,000 depending on the level of the position while more recent figures indicate it could be as much as $50,000! Whatever it is, it’s money that could be saved simply by conducting a more in-depth background check before employment.

2. Reduced Productivity

Often people lie on their resumes and, unfortunately, that means they don’t always have the skills or acumen to perform the tasks they’ve employed to do. This leads to a drop in productivity all round as other staff members struggle to make up for the fallout.

3. Professional Reputation

Most companies have customers and many employees are there to engage with them. If the wrong person is there doing a job they’re not suited to, it can quickly lead to a drop in customer satisfaction and a subsequent loss of trust. This can be damaging to a company’s reputation and can take a long time to rectify.

If these are the consequences of not conducting an adequate employee background check, just think what the consequences are if you’re going out on a date with a stranger or handing your kids into the care of an unfamiliar person. You wouldn’t forgive yourself for placing yourself in danger or making your children vulnerable, which is why using one of the best background check services is so important.

What Can I Use an Online Background Check For?

If you want to find out if your future roommate tends to scarper before paying the bills, or that the new mom in your carpool has had any traffic violations against them, then a service like BeenVerified is perfect. Similarly, if you’re worried that your sister’s latest love interest isn’t all he seems to be, you can simply enter his first and last names and find out the sordid details of his past, if there are any.

If, however, you’re a landlord looking to screen potential tenants, or an employer, like Citigroup, wanting to make sure they don’t employ any more criminals, you’ll need to find an FCRA-accredited company to perform the background check for you.

For more information about what you can use a background check for and what is prohibited, check out our article on all the do’s and don’ts of background check services.

What Makes a Good Background Check Service?

Whether you’re looking for a CRA to perform a legal background check on a potential employee, or you just want to find out if your new next-door neighbor is as squeaky clean as he appears to be, you need a service that will give you up-to-date information from a wide range of reliable sources.

The best background check services offer the following:

  • A wide range of up-to-date data sources
  • A variety of search options
  • Premium reports providing additional information
  • Notifications when new information becomes available

The only problem is, the best background check service for one type of search may not be the best for another. For example, if you want to find out if your partner is lying about his past as an employee of Donald Trump, you’ll find more comprehensive information about his work history using BeenVerified than some of the other online services available.

On the other hand, if you want to find out if you’re a victim of identity theft, TruthFinder’s Dark Web Scan is the most reliable and when it comes to checking out someone’s social media profiles, you can’t go wrong with PeopleLooker.

As the Citigroup’s conundrum illustrates, performing lackluster background checks has some serious consequences, and this is as true for the private individual as it is for a public company. Unfortunately, as Citigroup discovered, not all screening methods are as stringent as others so making sure you use a reputable background check company is vital for your own safety.

What Are the Dangers of An Inadequate Background Check?

Some background check companies are dependent on outdated resources which means you may not get access to accurate information. According to a white paper published in 2011, many online background check services and mobile phone apps return inaccurate results that, in the hands of the average user, “can lead to hasty and dangerous conclusions”.

Imagine, for instance, that you’re trying to track down your biological father and a background check service confirms that a man with the right name and date of birth is living just around the corner. When you confront him, however, it turns out this isn’t the right man. Now your life has been turned upside and so has his. Similarly, you may decide to go ahead with that first face-to-face date with your latest online fling, only to find that the background check you performed threw up a false negative, showing him to have no criminal history even though he has a long list of drug-related convictions.

You don’t want to go around falsely accusing people but, at the same time, the world is simply too dangerous to take everyone at face value.

Bottom Line

While we may not stand to lose $1m or so as a result of using an inadequate background check company, we still have much to learn from Citigroup’s recent employment fiasco. For one, it serves to show just how easy it is for people to slip through the cracks if a background check is not performed with the necessary rigor or using the latest and most accurate information available.

Just as Citigroup made its investors vulnerable by failing to perform a stringent background check, so you could make yourself vulnerable by using a less than reputable company to check out someone close to you. Bear in mind that the best background check services are inevitably the ones that charge for their services, for the simple reason that it costs money to access public records like court documents, so a free background check service is obviously not digging that deep.

To keep you, your family, and your loved ones as safe as possible use only the best background check services like BeenVerified and TruthFinder. Even then, it’s advisable to use the results with some modicum of tact and common sense, bearing in mind that inaccuracies and false positives will inevitably slip through the net from time to time.

Article comments