Citibank must disburse some $625 million in federal grants to climate groups that the government had previously ordered the bank to freeze, a federal judge said.
U.S. District Judge Tanya Chutkan ruled that Citi cannot transfer $14 billion in previously awarded funds back to the Environmental Protection Agency and must pay out the millions of dollars that were requested before funds were suspended by the Trump administration. The judge's order also bars the EPA and the Treasury Department from terminating the grants or from causing Citi to obstruct the climate groups' access to the money.
The decision marks the latest turn in a case that has put Citigroup's banking subsidiary in the crossfire of a legal battle between climate groups and the Trump administration.
Citi found itself in the middle of the dispute as the financial agent for the EPA's Greenhouse Gas Reduction Fund, a program approved by Congress in 2022 that's designed to grant more than $20 billion to nonprofit groups. The money was intended to finance climate-focused initiatives in under-resourced sectors and areas, such as solar panel installations in low-income communities. In the waning days of the Biden administration, the EPA rapidly awarded billions of dollars in grants to climate non-profits.
In February, Citi froze some of the grant recipients' accounts at the request of the FBI, which cited concerns of wire fraud and conspiracy to defraud the U.S. A few weeks later, the Treasury Department told Citi to stop disbursing any of the Greenhouse Gas Reduction Fund money.
The plaintiffs in the case — including the Climate United Fund, the Coalition for Green Capital and Power Forward Communities — allege that Citi breached its contract with them when it deferred to the government's directions to freeze their accounts.
The climate groups had asked the court in mid-March to order that the EPA couldn't terminate the Greenhouse Gas Reduction fund, suspend the previously allocated money or impede Citi from disbursing funds. The plaintiffs also requested that the court force Citi to release the money in the grant recipients' accounts, and bar the bank from transferring the money out of those accounts.
Chutkan, who had ordered Citi to temporarily freeze the funds at the time, granted the plaintiffs' motion for the injunction late Tuesday night. On Wednesday morning, EPA Administrator Lee Zeldin appealed the ruling to the U.S. appeals court for the District of Columbia.
Graham Steele, a former assistant secretary for financial institutions at Treasury, said banks take FBI requests to freeze accounts seriously. The "awkward" part of this case for Citi, he added, is that federal agencies are citing concerns of fraud, waste and abuse without yet producing evidence.
"I sympathize with [Citi] being in the middle of this tug of war," Steele said in an interview before Chutkan issued her order. "On the other hand, additional days and weeks that some of these groups don't get their funds means layoffs, and means maybe some of these groups will not exist in some period of time."
He added that this case may make banks more hesitant about jumping at financial agency agreement opportunities in the future.
Still, Citi's contract with Treasury was somewhat novel itself.
Gregg Treml, acting chief financial officer of the EPA, said in court documents that enlisting Citi to maintain the accounts for the Greenhouse Gas Reduction Fund marked the first use of a financial agent for a nonexchange grant program administered by the federal government.
Steele said this type of deal is not particularly lucrative for banks, but can be helpful in developing a relationship with the government, or in ushering in new business.
"If [banks] think they're going to be asked to do some of these uncomfortable things, and things are politically motivated, I don't think that's why they get into that business," Steele said. "So it would certainly have an impact on a bank's calculus when they're thinking about participating in one of these programs going forward to act as a financial agent."
Citi maintained in court filings that its connection with the grant program was "narrow and limited," and didn't entail making decisions about whether funds should be disbursed, or determining compliance with the grant agreement.
The defendants alleged that the actions taken by Citi, the EPA and Zeldin to freeze and terminate the Greenhouse Gas Reduction Fund were illegal.
Citi has maintained deference to the government throughout the legal proceedings. The bank has said in court filings that it has a fiduciary duty to the government, due to its financial agency agreement with Treasury, which takes precedence over the bank's contracts with the climate groups.
Hours before the judge's ruling was released on Tuesday, Citi Chief Financial Officer Mark Mason said during a quarterly earnings call with reporters that he wouldn't comment on the bank's relationship with the government, except to note that Citi has contractual obligations.
"It's impossible to predict with certainty the ultimate result of litigation, but these contracts already contain language to protect Citi from liability," Mason said. "We try to approach these types of things in a way that's consistent with our principles as an organization."
Earlier this month, the U.S. Supreme Court ruled in a similar but not identical case that the Trump administration could freeze diversity, equity and inclusion-related grants from the Department of Education. Chutkan's ruling on Tuesday marks a break from that decision.
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