AIB scandal claims scalps at Citibank

The fallout from the Allied Irish Banks scandal began to spread yesterday after it emerged that Citibank had suspended two employees for lavishly indulging the rogue trader who lost $691m (£487m) at AIB's subsidiary Allfirst Financial.

Details of the suspensions were sketchy, but according to one report they relate to foreign exchange traders who had worked in Singapore and New York. The pair had been released on full pay pending an investigation into "improper entertaining".

Citibank issued a short statement confirming only that two traders had been suspended earlier this month "for reasons unrelated to trading activity".

It is thought that the bank was concerned with the traders' relationship with John Rusnak, the foreign exchange dealer under investigation by the Federal Bureau of Investigation over fraudulent trades at Allfirst that date back to 1997.

It emerged this week that Mr Rusnak had enjoyed the high life through freebies provided by the brokers with whom he traded. An independent report into the affair published on Thursday found that he "was perceived as an active trader and a profitable client for the brokers".

Eugene Ludwig, the US banking expert who wrote the report, said: "The brokers and traders heavily entertained Mr Rusnak, with meals, hotel stays, golf trips, Super Bowl tickets and other travel. He apparently liked to be wined and dined, and the brokers obliged."

Mr Ludwig's report also revealed that Citibank had in effect alerted AIB to Mr Rusnak's gigantic trading positions two years ago. It had contacted AIB's group treasurer, Pat Ryan, in March 2000 to ask whether Allfirst could cover a $1bn settlement due the following month. AIB ordered Allfirst's risk assessment staff to make a discreet inquiry about the matter. The inquiry found that a similar-sized sum was due to Allfirst from Citibank at a later date, an explanation that satisfied AIB.

Citibank's suspensions are the first external casualties of the Rusnak affair. AIB this week dismissed six members of Allfirst's treasury team, who it accused of being "asleep on the job". No one at AIB has lost their job in the scandal. On Tuesday the board refused to accept offers of resignation from Michael Buckley, the chief executive, and Lochlann Quinn, the chairman, despite calls from some investors for heads to roll at group level.

The company yesterday reiterated that Mr Buckley, 56, intended to stay in his post until he retired.