Forbes — Deutsche Bank has joined an ever-growing list of global financial institutions that have been found guilty and fined for breaking US sanctions on a variety of unsavory regimes.
The New York State Department of Financial Services (NYDFS), with which the Fed is jointly acting,describes the offense as follows:
From at least 1999 through 2006, Deutsche Bank used non-transparent methods and practices to conduct more than 27,200 U.S. dollar clearing transactions valued at over $10.86 billion on behalf of Iranian, Libyan, Syrian, Burmese, and Sudanese financial institutions and other entities subject to U.S. economic sanctions, including entities on the Specially Designated Nationals (“SDN”) List of the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”).
The NYDFS goes on to explain that the methods used by Deutsche Bank employees to circumvent sanctions included altering the information contained in SWIFT messages (“wire stripping”) and using anonymous cover messages to disguise the transactions (“non-transparent cover payments”). Staff at all levels in the bank seem to have known about, and been actively involved in, these practices. The NYDFS includes some lovely quotations from staff emails – this, for example:
Let’s not revert to the client in writing due to the reputational risk involved if the e-mail goes to wrong places. Someone should call [the client] and tell them orally and ensure that the conversation is not taped. . . . Let’s also keep this e-mail strictly on a ‘need-know’ basis, no need to spread the news…what we do under OFAC scenarios
Staff handbooks even contained information on how to handle transactions involving sanctioned countries or institutions:
Special attention has to be given to orders in which countries/institutes with embargos are involved. Banks under embargo of the US (e.g., Iranian banks) must not be displayed in any order to [Deutsche Bank New York] or any other bank with American origin as the danger exists that the amount will be frozen in the USA.
It all adds up to deliberate, systematic evasion of US sanctions as a matter of bank policy.
The Federal Reserve has issued a cease & desist order which requires Deutsche Bank to clean up its act and bans it from having any further dealings with the people involved in these activities, most of whom have already left the bank. In addition, the NYDFS has insisted on the sacking of six current senior managers and significant restrictions on the activities of three more.
Together, the two agencies have imposed a monetary penalty of $258m. This is tiny compared to other fines imposed for sanctions breaking. Fines imposed on financial institutions over the last few years include the following:
- Barclays, August 2010: $298m for breaking sanctions against Cuba, Iran and Libya
- RBS, December 2013: $100m for breaking sanctions against Iran, Sudan, Myanmar and Cuba
- BNP Paribas, July 2014: $8.9bn for breaking sanctions against Sudan, Iran and Cuba. This is by far the largest penalty to date, reflecting the US’s view that BNP Paribas effectively kept the Sudanese government in office by effectively acting as its central bank.
- Commerzbank, March 2015: $1.45 bn for sanctions breaking in Iran and Sudan, and accounting fraud
- Credit Agricole, October 2015: $787m for breaking sanctions against Iran, Sudan, Myanmar and Cuba.
Compared to some of these, Deutsche Bank has gotten off lightly – this time. But this will by no means be the last investigation into Deutsche Bank’s activities. In October 2015, Deutsche Bank announced that it was increasing provisions by approximately $1.3bn for litigation costs of unknown amount, most of which was not expected to be tax deductible. Clearly this wasn’t for a measly fine of a couple of million dollars. No, the big one is still to come. And there is a pretty obvious candidate on the horizon.
The US Justice Department, together with the NYDFS, is currently investigating Deutsche Bank’s Russian unit for trading activities involving US-sanctioned individuals close to Russia’s President Putin. Deutsche Bank has already discovered control and compliance failures in its Russian unit and notified European and Russian regulators, and the UK’s Financial Conduct Authority (FCA) is investigating the Russian operation for money laundering breaches. But the US’s involvement raises the stakes considerably.
The FT explains that the DOJ and NYDFS are investigating about $6bn worth of so-called “mirror trades”, which it describes thus:
Russian clients bought securities in roubles through Deutsche Bank’s Moscow office and then sold identical ones for foreign currency, including US dollars, through the bank’s London office. Some of the transactions also involved US dollar clearing.
The US’s investigation is believed to center on a US citizen who until recently occupied a senior position at Deutsche Bank – and who is now suing Deutsche Bank for wrongful dismissal, according to Reuters.
Will $1.3bn be enough? We do not know, but it doesn’t seem exceptionally large for what is possibly a serious felony. Despite the actions taken by the new CEO, Deutsche Bank is by no means out of trouble yet.
