A US appeals court has ruled that Citigroup must face a reinstated lawsuit claiming it orchestrated and concealed extensive fraud at now-bankrupt Mexican oil services company Oceanografia, resulting in more than $1 billion in losses.

The three-judge panel of the 11th US Circuit Court of Appeals in Miami determined that 30 Oceanografia vendors, creditors and bondholders adequately alleged that Citigroup substantially aided the fraud, overturning a lower court's dismissal of the nine-year-old case.

According to court documents, Citigroup's Banamex unit provided cash advances totalling $3.3 billion to Oceanografia between 2008 and 2014, despite allegedly knowing the company was overburdened with debt and had been forging signatures from Mexico's state-owned oil company Petroleos Mexicanos (Pemex) on authorisation forms.

The plaintiffs, including shipping and leasing companies, investment funds and Netherlands-based Rabobank, claim Citigroup withheld critical information while collecting interest payments on the advances.

Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment on the ruling. Juan Morillo, representing the plaintiffs, said his clients were "gratified by the decision".

In her 82-page decision, Circuit Judge Britt Grant wrote: "Citigroup is one of the world's most sophisticated financial institutions, and it strains credulity to conclude that, assuming the plaintiffs' allegations are true, Citigroup lacked awareness of (Oceanografia's) activities."

The bank later discovered nearly $430 million of fraudulent cash advances and was fined $4.75 million by the US Securities and Exchange Commission in 2018 over Banamex's inadequate internal controls.

Former Citigroup chief executive officer Michael Corbat previously acknowledged that the bank had dismissed 12 employees in connection with the scandal, whilst Mexican regulators determined that 10 bank employees were criminally liable under Mexican law.

The case has now been returned to US District Judge Darrin Gayles in Miami, who had initially dismissed it in August 2023.

---