The bank was fined £163m by the UK’s Financial Conduct Authority (FCA) and $425m (£341.6m) by the US Department of Financial Services (DFS) on Tuesday.
The fine was the largest penalty for anti money laundering (AML) controls failings ever imposed by the FCA. The regulator said that the bank exposed the UK financial system to the risks of financial crime by failing to maintain an adequate AML control framework between 2012 and 2015.
As a consequence of the lack of controls, Deutsche Bank was used by unidentified customers to transfer approximately $10bn, of unknown origin, from Russia to offshore bank accounts, the UK regulator said. It added that the transfer was made “in a manner that is highly suggestive of financial crime”.
The DFS, which worked together with the FCA, said its investigation found that the bank missed numerous opportunities to detect, investigate and stop the scheme due to extensive compliance failures, allowing it to continue for years.
The regulators said that the mirror trades were used by customers of Deutsche Bank and DB Moscow to transfer more than $6bn from Russia, through Deutsche Bank in the UK, to overseas bank accounts, including in Cyprus, Estonia, and Latvia.
The orders for both sides of the mirror trades were received by DB Moscow, which executed both sides at the same time.
Companies that were clients of the Moscow equities desk issued orders to purchase Russian blue chip stocks, always paying in rubles, the DFS said.
Shortly thereafter, sometimes on the same day, a related counterparty would sell the identical Russian blue chip stock in the same quantity and at the same price through Deutsche Bank’s London branch. The DFS claimed the counterparties involved were always closely related, often linked by common beneficial owners, management or agents.
Mark Steward, director of enforcement and market oversight at the FCA, said, “Financial crime is a risk to the UK financial system. Deutsche Bank was obliged to establish and maintain an effective AML control framework. By failing to do so, Deutsche Bank put itself at risk of being used to facilitate financial crime and exposed the UK to the risk of financial crime.
“The size of the fine reflects the seriousness of Deutsche Bank’s failings. We have repeatedly told firms how to comply with our AML requirements and the failings of Deutsche Bank are simply unacceptable. Other firms should take notice of today’s fine and look again at their own AML procedures to ensure they do not face similar action.”
Maria Vullo, financial services superintendent at the DFS, 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 offsetting trades here lacked economic purpose and could have been used to facilitate money laundering or enable other illicit conduct, and today’s action sends a clear message that DFS will not tolerate such conduct.
“DFS is pleased to work with the Financial Conduct Authority on this matter. We also appreciate the bank’s forthrightness and timeliness in conducting its internal review and cooperation in our investigation.”
As well as issuing a fine, the US regulator ordered Deutsche Bank to hire an independent monitor as part of its consent order.
It must select an independent monitor over the next 60 days, approved by DFS, to conduct a comprehensive review of the bank’s existing AML compliance programs, policies and procedures.
Deutsche Bank was also ordered to submit a written action plan to improve and enhance its current global AML compliance programs.
According to the FCA, Deutsche Bank was “exceptionally cooperative” with the investigation and has committed “significant resources” to a large scale remediation programme to correct the deficiencies in its AML control framework and customer files.
Deutsche Bank said in a statement on its website that it was cooperating with other regulators and law enforcement authorities, “which have their own ongoing investigations into these securities trades”.
In a memo to the bank’s employees, Karl von Rohr, chief administrative officer, wrote, “We deeply regret the bank’s role in the issues cited.
“My management board colleagues and I are grateful for your resilience, hard work and commitment over the past year in strengthening our controls. We have some way to go until we can put our major legacy legal matters behind us, but we continue to pursue their resolution step-by-step.”