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There is an ongoing debate about the cost-benefit relationship of internal controls and their ethical implications - Essay Example

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Jessica Silver-Greenberg’s article discusses a case involving Citigroup that contributed to a scandalous fraud of money laundering in Mexico and the US. It emerged that the bank had raised its financial projections without tangible identification of the sources or investment…
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There is an ongoing debate about the cost-benefit relationship of internal controls and their ethical implications
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Download file to see previous pages investigators cited that the bank lacked strict safeguards against clients laundering money, following a suspicion that illicit drug money was streaming through their internal account. The Regulations by the Federal Reserve require banks to install tight internal controls in order to detect any criminal involvements in their operations (Silver-Greenberg, 2013). This is because weak controls facilitate drug dealers and terrorists to launder money through the financial institutions.
The ethical implication of Citigroup’s case is that it failed to observe the Federal’s rules of having complex control mechanisms. In this regard, money laundering might have occurred to sustain the drug traders. Banks need to ensure that they scrutinize their clients to determine the sources and the recipients of the huge sums of money. It is also evident that the management tried to manipulate its financial statements to hide transactions involving the drug dealers. The bank failed to show the money streamed through its Mexican branches into the US, which was an indication of weak controls. The Federal Reserve claims that the bank does not oversee its operations, which leads to funneling of money in support of sanctioned individuals and countries (Silver-Greenberg, 2013).
The accounting ethical standards involve the reporting of accurate financial information without manipulations. This implies that organizations should not tamper with their accounting books to make them appear more profitable to the shareholders and investors. For instance, Citigroup had tampered with its records after the money laundering fraud in the backdrop of increasing dividends. Financial institutions need to observe the Bank Secrecy Act by removing tainted cash through recording of doubtful-activity reports (Silver-Greenberg, 2013). This implies that the Citigroup management failed to comply with the rules set by the Federal Reserve, which led to probing into its activities.
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