Global banking major Citibank relies on a so-called “six eyes” protocol for high-value transactions. It simply means at least three people must approve large sums of money transfers. The extra pairs are deployed as a measure of precaution.
On August 11, 2020, Citi was set to transfer $8 million to lenders of cosmetics company Revlon in its capacity as a loan agent. There were ‘six eyes’ at hand to make sure everything went without a hitch. Of the three, two were in India. They worked with Wipro Technologies, the Indian technology partner of Citi.
Citi Bank mistakenly paid Revlon’s lenders around $900 million. The incident—billed as the biggest blunder in banking history—expectedly made global headlines. It was back in the news earlier this month when Citigroup lost a legal battle in the US to recover the money it accidentally transferred.
Now, attention is swiftly turning to Wipro’s damaging role in the episode.
Citibank’s partnership with Wipro harks back to at least 13 years. In December 2008, Wipro said it was buying Citi Technology Services, the India-based captive provider of IT services and solutions to Citigroup entities worldwide, for $127 million in an all-cash deal. It was a lucrative deal for Wipro that ensured $500 million of business for six years.
Two years later, in August, Wipro and Citibank unveiled an agreement under which the Indian company would take over the operation and management of Citi’s data centre at Meerbusch in Germany.
Wipro even now counts Citi as one of its top clients, accounting for over $250 million annually, said people who are familiar with the company’s business. The company provides Citi a range of services including IT, infrastructure management and business processing services (BPS).
Now, the gaffe could potentially derail a profitable business and cast a shadow on similar business arrangements, according to analysts.
The error was human, not a technical one as some in Citi initially thought.
The process of sanctioning a high-value fund transfer begins with a ‘maker’— typically a subcontractor (a Wipro employee in this case) — by filling in the information into Citi’s Flexcube loan processing system. A ‘checker’ — again a Wipro employee — vets the transaction. The third and final step is when an ‘approver’, a Citibank employee, confirms the transactions initiated by the two Wipro employees.
Technology website Arstechnica reported that the subcontractor (Wipro employee) thought that checking the “principal” checkbox and entering the number of a Citibank wash account would ensure that the principal payment would stay at Citibank. “He was wrong. To prevent payment of the principal, the subcontractor actually needed to set the “front” and “fund” fields to the wash account (clearing account) as well as “principal.” The subcontractor didn’t do that,” the report said.
In other words, the maker made the wrong entry, the checker and the approver (the Citibank manager) failed to spot the error.
The initiation and approval of the transaction in the Citi case originated at Wipro’s BPS division. One of the employee’s LinkedIn profile showed that he continues to work in this division. It is not clear if both employees were re-assigned after the mistake.
Wipro did not respond to email queries from Moneycontrol. In an email response to Moneycontrol, Citibank didn’t respond to specific queries on whether the incident will impact its relation with the technology partner. The bank said it is in the process of upgrading the loan operations platform following a review conducted in 2019.
“As a result of a review undertaken last year (2019), we are in the process of upgrading our loan operations platform. We take pride in the role that we play as a global leader in financial services and recognize that an operational error of this nature is unacceptable. We have put significant, additional controls in place until the new system is operational,” said Citibank in the response.
“While many lenders have recognised the payment was in error and returned several hundred million dollars so far, other lenders have either refused to return or have not committed to return the funds. Those funds have been frozen by court order. We believe the law is on our side and that we will recover the outstanding funds,” said the bank in the email response.