Here is an update:
- Yesterday went to the local branch where the account was first opened. Spoke to the manager on duty. He called somewhere and after numerous "yes" and "I understand", he said that he was not given much information other than listed in the letter and there is nothing he can do.
He reiterated that most likely citibank flagged my wife's account due to large amount of cash deposits. Upon my detailed explanation on why we did this, he suggested to use wire transfers instead of cash deposits.
We opened another account across the street without any issues.