Risk & Compliance

Deutsche Bank Fined Over Laundering Controls

A New York State regulator says the bank's deficient controls facilitated $10 billion in sham trades involving Russian investors.
Matthew HellerJanuary 31, 2017
Deutsche Bank Fined Over Laundering Controls

New York State’s main financial regulator has fined Deutsche Bank $425 million for allowing $10 billion in sham trades involving Russian investors by failing to properly enforce protections against money laundering.

The “mirror trades” that were carried out through Deutsche’s Moscow, London and New York offices between 2011 and 2015 could have been used to launder money out of Russia, the New York Department of Financial Services said in a consent order accusing the bank of “extensive compliance failures.”

Deutsche agreed to pay $425 million to resolve the DFS investigation and another 163 million pounds, or about $204 million, in a separate settlement with the Financial Conduct Authority of Britain. The British fine is the largest penalty for anti money-laundering failures yet imposed by the FCA.

“This Russian mirror-trading scheme occurred while the bank was on clear notice of serious and widespread compliance issues dating back a decade,” DFS Superintendent Maria T. Vullo said in a news release. “The offsetting trades here lacked economic purpose and could have been used to facilitate money laundering or enable other illicit conduct.”

The New York Times said the punishment “represents the latest regulatory black eye for Deutsche Bank, Germany’s largest. In the last decade, it has been implicated in several financial scandals, including pushing toxic mortgages on investors and manipulating London’s main lending rate for its own financial gain.”

According to a DFS outline of the mirror-trading, clients of Deutsche’s Moscow equities desk issued orders to purchase Russian blue chip stocks, always paying in rubles. Shortly thereafter, a related counterparty, typically registered in an offshore territory, would sell the identical stock in the same quantity and at the same price through Deutsche’s London branch.

The trades were routinely cleared through the bank’s Deutsche Bank Trust Company of the Americas unit, the DFS said, and the selling counterparty would be paid for its shares in U.S. dollars.

The regulator faulted in particular the bank’s Know Your Customer screens, saying they functioned “merely as a checklist with employees mechanically focused on ensuring documentation was collected, rather than shining a critical light on information provided by potential customers.”