NEW YORK/FRANKFURT Deutsche Bank AG
has agreed to pay $425 million to New York’s banking regulator
over a “mirror trading” scheme that moved $10 billion out of
Russia between 2011 and 2015, the regulator said on Monday.
In addition, Britain’s Financial Conduct Authority is about
to penalize the bank roughly $200 million for the suspicious
trades, a person familiar with the matter said.
The scheme involved clients buying stocks in Moscow in
rubles and related parties selling the same stocks shortly
thereafter through the bank’s London branch, the New York
Department of Financial Services (DFS) said in a statement.
The trade of a Russian blue chip stock, typically valued at
between $2 million to $3 million an order, was cleared through
the bank’s New York operations, with the sellers typically paid
in U.S. dollars, DFS said.
The regulator, which licenses and supervises the New York
branch, found the bank conducted its business in an unsafe and
unsound manner in violation of state banking law.
Though the trades appeared to have no legitimate economic
purpose, Deutsche’s deficient anti-money laundering controls and
know-your-customer policies did not detect and stop the scheme
for years, DFS superintendent Maria Vullo said.
Deutsche Bank said “it has been unable to identify the
actual purpose behind this scheme,” according to a consent order
between the New York regulator and the bank. “It is obvious,
though, that the scheme could have facilitated capital flight,
tax evasion or other potentially illegal objectives.”
In addition to the penalty, Deutsche is required to retain
an independent monitor to review the bank’s compliance programs.
Deutsche Bank said in a statement that the settlement monies
were already reflected in existing litigation reserves. It said
the regulator considered its cooperation and remediation in
reaching the penalty.
Deutsche also said it was cooperating with other regulators
and law enforcement authorities with their ongoing
investigations of the trades.
A spokesperson for the Financial Conduct Authority declined
to comment. The source on the FCA’s expected penalty did not
want to be identified because the terms were not public.
The New York regulator said it worked closely on the
investigation with the FCA.
Reuters reported on Monday that Deutsche Bank was poised to
settle with British and U.S. authorities over the trades.
The U.S. Department of Justice, which also has been
investigating the suspicious trades, is not party to the deal. A
spokesman for the department declined to comment on the status
of its probe.
Deutsche Bank disclosed last September that it had taken
disciplinary measures against certain employees as part of an
investigation of the trades and would continue to do so.
The bank also cut back on its investment banking activities
in Russia last year.
Monday’s consent order found Deutsche Bank’s Moscow traders
facilitated the scheme, with most of the trades placed by a
single trader representing both sides of the transaction.
Deutsche’s Moscow traders did not question the suspicious
trades because it made for easy commissions when their Russian
business had slowed, the regulator found.
The regulator also noted that one Moscow supervisor may have
been bribed to facilitate the schemes, and that senior bank
employees missed red flags and did not take action towards real
reform until 2016.
Deutsche Bank had set aside 1 billion euros ($1.1 billion)
in provisions for the Russian probes, people close to the matter
have told Reuters.
The resolution of the New York mirror trade probe comes on
the heels of a $7.2 billion agreement with the Justice
Department for misleading investors in selling mortgage-backed
securities in the run-up to the financial crisis. The two
settlements lift much of the uncertainty swirling around the
bank over its exposure to fines and enforcement.
The bank is due to report fourth-quarter financial results
#1 Lawyers Search Engine