NEW YORK (Reuters) - Citigroup ( C/PN ) on Tuesday urged a federal judge to dismiss New York Attorney General Letitia James' lawsuit accusing its Citibank unit of failing to reimburse customers who fall victim to online scammers.

While recognizing that the problem of online wire fraud "is real," the third-largest U.S. bank faulted James' "misguided" effort to hold it liable under a federal law governing electronic fund transfers because it expressly excludes wire transfers.

Citigroup ( C/PN ) said the proper standard from the Uniform Commercial Code, which all U.S. states use, excuses banks from covering losses if in good faith they adopt commercially reasonable security measures to verify customer identities.

The New York-based bank said it has done so, and stops "countless" fraudulent transactions each day.

"No system will catch every scam every time," but the solution is not a lawsuit that would "abruptly and dramatically upset how banks have organized their policies and practices for decades," Citigroup ( C/PN ) said in a filing in Manhattan federal court.

James' office did not immediately respond to a request for comment.

The attorney general sued Citibank in January.

She said the failure of its security systems to effectively investigate red flags such as using unrecognized devices, changing user names and passwords, and "phishing" enabled scammers to steal millions of dollars.

In one instance, a customer allegedly lost $40,000 of retirement savings after clicking a link in a text message that appeared to be from Citibank.

James also accused Citibank of coercing victims into signing affidavits that purported to narrow their ability to recoup losses, and then summarily rejected reimbursement claims.

The attorney general wants Citibank to pay back defrauded New Yorkers, pay a $5,000 civil fine per violation, and appoint an outside monitor to review bank records and locate victims.

The case is New York v Citibank NA, U.S. District Court, Southern District of New York, No. 24-00659.