Deutsche fined $888m for laundering roubles

Deutsche fined $888m for laundering roubles
PHOTO: Reuters

Deutsche Bank has agreed to pay US$627m (S$888m) to US and UK regulators for breaching money laundering laws when moving US$10bn out of Russia for clients in Moscow between 2011 and 2015.

The bank is to pay the UK's Financial Conduct Authority £163m (S$287m) , which was 30 per cent less than it would have paid if it had not agreed to settle at an early stage of the regulator's investigation. It will also pay US$425m to the New York State Department of Financial Services.

The US regulator in its investigation said Deutsche had"missed numerous opportunities to detect, investigate and stop the scheme due to extensive compliance failures, allowing the scheme to continue for years".

Several other agencies, including the US Department of Justice, are conducting their own investigations about the trades, which involved traders in London and New York as well as Moscow.

The scheme saw Deutsche accept orders in Moscow to buy Russian blue-chip stocks in roubles while shortly afterwards a related counterparty would sell the same stocks at the same price through the bank's London branch.

That counterparty, normally registered offshore, would accept US dollars for its stock. At least 12 entities were involved and in some cases the rouble buyer and US dollar receiver would have the same beneficial owner.

Over 2,400 mirror trades, laundering US$6bn, were carried out using the UK branch between April 2012 and October 2014, the FCA said. In addition a further 1,000, or US$3.8bn, of suspicious "one-sided" trades also took place.

The bank earned £9.1m in commission for the trades. The FCA said this had been "disgorged as part of the overall penalty meaning that the firm has received no financial benefit from the breach".

Under the terms of its settlement with the New York DFS, Deutsche must install an independent monitor for up to two years to make sure the offences are not repeated. "We deeply regret the bank's role in the issues cited," said Karl von Rohr, chief administrative officer. He said Deutsche had increased headcount in its financial crime unit by 30 per cent in 2016 and wanted to increase it by a further 50 per cent this year, to over 1,000 people.

Earlier this month Peter Hazlewood, head of financial crime and group money-laundering reporting officer, left his position after just six months. He was replaced by Philippe Vollot, chief operating officer for regulation, compliance and financial crime.

Deutsche has closed its Russian investment banking operations since the money laundering issues first came to light. "We are cooperating with other regulators and law enforcement authorities, which have their own ongoing investigations into these securities trades. We therefore cannot say yet that this matter is closed, but we are making progress,"said von Rohr.

New York's financial services superintendent Maria Vullo said: "This Russian mirror-trading scheme occurred while the bank was on clear notice of serious and widespread compliance issues dating back a decade." The department's fine was significantly higher than other levies for similar offences, the next biggest being a US$235m penalty against Italian lender Intesa Sanpaolo. The FCA's fine was the highest ever levied for money laundering breaches.

The department said among other problems, Deutsche's "know your customer" processes were weak "functioning merely as a checklist... rather than shining a critical light on information provided by potential customers".

Deutsche will release its fourth-quarter figures this Thursday. The bank has already said it will incur a US$1.2bn charge after reaching a US$7.2bn settlement at the end of last year with the US DoJ for misleading investors over residential mortgage-backed securities.

The payments to the FCA and New York DFS do not require further provisions to be made, Deutsche said.

 

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