Deutsche Bank AG ("DB") agreed to pay a $425 million fine and hire an independent compliance monitor to settle New York Department of Financial Services ("NYDFS") money laundering charges. The NYDFS alleged that the bank had failed to detect a long-running "mirror-trading" scheme in which clients in Russia moved $10 billion through London and New York. According to the NYDFS Consent Order, the suspicious transactions, which were made using over a dozen legal entities in offshore territories, were facilitated by traders in a DB Moscow affiliate who generated large fees while effectively operating with no management supervision or compliance review.
The scheme involved clients of the DB Moscow affiliate desk routinely purchasing "Russian blue chip stocks, always paying in rubles." The Consent Order stated that a related counterparty would sell the identical Russian blue chip stocks in the same quantity and price through the DB London branch, making the counterparties to the trade "closely related on both sides, such as through common ownership." The Consent Order determined that the trades frequently lost money due to fees and commissions paid to DB, and seemed to have no economic rationale other than to move funds out of Russia.
The NYDFS concluded that DB missed a number of key opportunities to detect and prevent this scheme, highlighting significant deficiencies in compliance and internal control at multiple levels of management. As a result, the NYDFS found that DB failed to: (i) conduct its banking business in a safe and sound manner; (ii) maintain an effective and compliant anti-money laundering program; and (iii) maintain and provide accurate books, accounts and records reflecting each action and transaction. This included, among other issues, DB having flaws in its know-your-customer policies and procedures, its anti-money laundering risk rating system, and its audit system.
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