US probe derails Citizens sell-off

ROYAL Bank of Scotland’s plans to sell its American retail banking business have been derailed by a US investigation into allegations it laundered money for rogue nations such as Iran. Regulators are investigating concerns that RBS – including its US subsidiary Citizens – failed to prevent rogue states from laundering money through the lender. It is suspected of breaking American trade sanctions on rogue nations, including Iran. The state-backed lender was slapped with a ‘cease and desist’ order last July by the US Federal Reserve and other US banking regulators instructing it to tighten up anti money laundering controls. As well as facing a fine, insiders now fear RBS could be prevented from selling Citizens for up to five years until the clean- up operation is completed. It is thought the bank has already rejected an approach from Canadian bank Toronto Dominion. RBS is under pressure from the Treasury to sell Citizens, which could fetch more than £6bn, and strengthen RBS’s balance sheet. Chief executive Stephen Hester is believed to want to boost the arm’s profitability to secure the best price. But it is feared he will be unable to get a decent price while the probe is ongoing. Analyst Gary Greenwood of Shore Capital said: ‘There does seem to be a growing element of protectionism among US regulators. Providing the buyer is a reputable company with a strong balance sheet there should be no issues over transfer.’ News the money laundering investigation could torpedo a lucrative sale is another blow to taxpayers who are sitting on a loss of more than £21bn as the lender’s share price has slumped. On Friday evening Santander pulled out of a £1.65bn deal to buy 316 branches which RBS ( down 2.8pc to 268.1p) was forced to sell as a condition of receiving a £45bn bail out. Virgin is thought to be bidding £1bn less for the branches. RBS will attempt to persuade the European Commission to give it more time to find a new buyer. Currently the deadline is the end of next year. This is not the first time RBS has been under fire over money laundering. Subsidiary Coutts was fined £8.75m earlier this year for failings in its systems. And the former Dutch bank ABN Amro, taken over by RBS during the credit crisis, was made to pay £311m by the US Department of Justice for violating trade sanctions with Iran, Libya, Sudan and Cuba.