SEC fines Deutsche Bank’s subsidiary $25 million for AML and ESG failures

Rick Steves

In the AML action, Deutsche Bank’s DIMA, without admitting or denying the SEC’s findings, agreed to a cease-and-desist order and a $6 million penalty. In the ESG misstatements action, the company consented to a cease-and-desist order, censure, and a $19 million penalty.

The Securities and Exchange Commission (SEC) has taken significant enforcement actions against DWS Investment Management Americas Inc. (DIMA), a subsidiary of Deutsche Bank AG, related to the development of a mutual fund Anti-Money Laundering (AML) program and misstatements concerning its Environmental, Social, and Governance (ESG) investment process.

To resolve these charges, DIMA has agreed to pay a total of $25 million in penalties.

DIMA caused mutual funds to fail AML program goals

In the AML enforcement action, the SEC’s order reveals that DIMA is found to have caused mutual funds under its advisory to fail in establishing a reasonably designed AML program, as mandated by the Bank Secrecy Act and Financial Crimes Enforcement Network regulations.

Furthermore, the order notes that DIMA played a role in these mutual funds’ failure to adopt and execute policies and procedures that would adequately detect money laundering activities. The company also did not provide specific AML training tailored to the mutual funds’ business.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized that mutual funds, regardless of their assets, must have AML programs customized to their individual risks as required by law. This includes the obligation to establish and implement unique programs to detect and prevent money laundering and terrorism financing.

DIMA made material misrepresentations about ESG controls

The second enforcement action by the SEC centers on DIMA’s misleading statements regarding its ESG investment process. The SEC’s order notes that DIMA made material misrepresentations about its controls for integrating ESG factors into research and investment recommendations for ESG integrated products. Although the company marketed itself as an ESG leader adhering to specific ESG integration policies, it failed to fully implement these policies as it led clients and investors to believe from August 2018 until late 2021.

Moreover, DIMA did not establish and implement policies and procedures to ensure the accuracy of its public statements concerning ESG integrated products.

Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force, stressed the importance of investment advisers ensuring their actions align with their representations, especially in matters materially significant to investors. DIMA’s failure to follow its marketed ESG investment processes was a notable violation of this principle.

In the AML action, DIMA, without admitting or denying the SEC’s findings, agreed to a cease-and-desist order and a $6 million penalty. In the ESG misstatements action, the company consented to a cease-and-desist order, censure, and a $19 million penalty. These actions reflect the seriousness of the charges and the SEC’s commitment to ensuring compliance with regulations in the investment management industry.

Both investigations were led by the SEC’s Enforcement Division’s Asset Management Unit (AMU) and received support from various SEC divisions and units, highlighting the collaborative effort to uphold regulatory standards.

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