Huge fines for Deutsche Bank for money laundering offences
In January 2017, Deutsche Bank received fines amounting to about £506m for failure to prevent money laundering. The UK’s Financial Conduct Authority (FCA) imposed its largest ever fine of £163m on the Bank, with the New York Department of Financial Services (DFS) imposing a fine of US$425m.
The FCA stated that the Bank’s Anti-Money Laundering (AML) controls were not stringent enough to prevent an estimated US$10bn being transferred through a stock trading scheme by unidentified customers from Russia to offshore bank accounts “in a manner that is highly suggestive of financial crime”.
The Bank, it continued, had been unable to determine who many of its customers were, cited missing identification documents, lack of information about corporate ownership and poorly understood foreign language paperwork. Most of the trades were placed by a single trader, who did not question the transaction, because it made for easy commissions.
The US Regulator stated that “the bank missed numerous opportunities to detect, investigate and stop the scheme due to extensive compliance failures, allowing the scheme to continue for years”.
Mark Steward, director of enforcement and market oversight at the FCA stated that “Deutsche Bank was obliged to establish and maintain an effective AML control framework” and its failure to do so was “simply unacceptable”. The FCA stated that the fines were a warning to other businesses that did not enforce adequate AML procedures.
In the US investigation, one senior compliance officer at the Bank stated that he had to “beg, borrow and steal” to obtain adequate AML resources. Whilst Deutsche Bank claimed that the number of compliance officers had risen by 30% in 2016 to 700 people, with another 450 due to be hired in 2017, this did not prevent financial regulators from imposing the hefty fines. These were levied in spite of the Bank’s cooperation with the FCA, although it has been reported that the Bank received a 30% discount due to its cooperative stance.
These are not the first such fines to have been imposed on Deutsche Bank. Since 2015, it has been fined for a range of offences, including breaching US sanctions against Iran, rigging Libor and tax evasion. It has, however, been reported that the Bank has now taken appropriate disciplinary measures against relevant individuals and that it will continue to do so as necessary in the future. It has also committed to addressing its AML failings.
The Deutsche Bank episode illustrates the importance of effective know your client procedures and AML controls for financial institutions and, indeed, other international companies.
The FCA’s report can be found here.