Deutsche Bank was found to have violated New York anti-money laundering laws via a “mirror trading” scheme involving the bank’s Moscow, London and New York offices.
The New York State Department of Financial Services (DFS) has announced that Deutsche Bank AG (ETR:DBK) and its New York branch will have to pay a $425 million fine and engage an independent monitor as part of a consent order entered into with the DFS.
The penalties are for violations of New York anti-money laundering laws via a “mirror trading” scheme among Deutsche’s Moscow, London and New York offices that laundered $10 billion out of the Russian Federation.
DFS’s investigation found that Deutsche failed multiple times to stop the scheme due to compliance issues.
- The Mirror Trades
According to DFS’ findings, the long-running mirror-trading scheme was facilitated by Deutsche’s Moscow branch and involved New York and London branches. Operating through the equities desk at Deutsche Bank’s Moscow branch, a number of companies that were clients of the Moscow equities desk issued orders to purchase Russian blue chip stocks, always paying in Russian rubles. Soon after that, a related counterparty would sell the identical Russian blue chip stock in the same quantity and at the same price through Deutsche Bank’s London branch. The counterparties involved were closely related, whereas the trades were routinely cleared through Deutsche Bank Trust Company of the Americas (DBTCA). The selling counterparty was usually registered offshore and would be paid for its shares in US dollars. The DFS investigation shows that at least 12 entities were involved, and none of the trades had any legitimate economic rationale.
- The list of violations that DFS’s investigation uncovered includes the following:
The bank has carried out its banking business in an unsafe and unsound manner, as it failed to maintain an effective and compliant anti-money laundering program. Deutsche also failed to maintain and make available true and accurate books, accounts and records reflecting all transactions and actions.
The bank’s Know Your Customer (KYC) processes were poor, functioning merely as a checklist with employees formally focused on ensuring documentation was collected, rather than critically assessing information provided by potential customers. The DFS notes that “virtually all of the KYC files for the companies involved in the scheme were insufficient”.
Deutsche Bank’s anti-financial crime, AML and compliance units were found to be ineffective and understaffed. For instance, the DFS has found out that at one point, an attorney who had no compliance background acted as Deutsche’s Moscow branch’s head of compliance, head of legal, and as its AML Officer – all at the same time.
- The consent order
Within 60 days of the consent order, the bank must hire an independent monitor, approved by DFS, to review Deutsche’s current BSA/AML compliance programs, policies and procedures that are related to activities conducted by or through its DBTCA subsidiary and the New York branch.
The bank should also submit a written action plan to enhance its current global BSA/AML compliance programs that pertain to or affect activities conducted by or through DBTCA and the New York Branch, the DFS said in its announcement on the matter.
- FCA action
This morning, the UK Financial Conduct Authority (FCA) announced it is imposing a fine of £163,076,224 on Deutsche Bank for failing to maintain an adequate AML control framework during the period between January 1, 2012 and December 31, 2015. This is the biggest financial penalty for AML controls failings ever imposed by the FCA, or its predecessor the Financial Services Authority (FSA).
- Raft of problems
As per FinanceFeeds’ report, Deutsche Bank, one of the top interbank FX dealers, is about to publish some dismal financial results this Thursday (February 2).
A part of the loss is attributed to payments over market manipulation. Deutsche Bank finalized a $7.2 billion payment with the US Department of Justice earlier this month – a civil penalty of $3.1 billion and $4.1 billion in consumer relief for mis-selling mortgage-backed securities. In addition to that, there are risks on the bank’s derivatives book, as FinanceFeeds’ report has highlighted.#aml, #anti-money laundering laws, #deutsche bank, #Deutsche Bank AG (ETR:DBK), #london, #mirror trading, #Moscow, #NY