Deutsche Bank AG was sent a settlement notice from New York’s Department of Financial Services to pay $425 million as a penalty for its alleged involvement in the “mirror-trading” scheme which facilitated wealthy Russians to launder $10 billion out of Russia between 2011 and 2014.
The New York regulator told reporters that it appears a close relative of an employee of Deutsche Bank in Moscow was bribed nearly $250 million so that the employee could clear the payments out of the country.
It is also reported that Deutsche Bank is expected to shell out another $700 million as penalty as part of a settlement with UK’s Financial Conduct Authority for similar allegations.
Despite the settlement, a high-level federal probe is on to check whether or not the internal protocols of the German lending bank failed to pick up any dubious transactions and trigger appropriate alarms. The settlement with the New York regulator includes a mandate to appoint an independent monitor, which will the German’s lender’s 6th independent monitor in the US.
DFS superintendent Maria Vullo issued a written statement which stated, “This Russian mirror-trading scheme occurred while the bank was on clear notice of serious and widespread compliance issues dating back a decade.”
Mirror trades facilitated counter-parties of Deutsche Bank in Russia to purchase blue-chip shares locally in rubles while the same shares were sold in the London stock exchange in dollars.
While some trades under this scheme could be well within the legal framework, the prosecutors of the US Justice Department were investigating the bank’s protocols for anti-money laundering to see if any of these transactions could have slipped through any loopholes.
An internal audit conducted by Deutsche Bank did find a “systemic” breakdown in the bank’s internal controls to prevent financial crime and money laundering.
The trades underlying the transactions did not have any apparent economic reason and hence could potentially have been used to launder money or enable any other illegal business. The DFS Superintendent added that the penalty is a clear indication of the regulator’s highly stringent and intolerant outlook on such conduct. She appreciated the German bank’s full cooperation during the investigation process.
As part of the settlement, the Deutsche Bank has signed a consent order wherein it has accepted that their Moscow office is a place where traders did focus on lucrative commissions and could have neglected to see obvious red flags.
This settlement deal closely follows another deal for $7.2 billion in civil penalty towards wrapping up a US investigation into Deutsche Bank’s sales of bad mortgage products in the run-up to the 2008 economic crisis.
Despite the bank’s efforts to quickly close up all pending legal cases against it, investigations into allegations of foreign exchange rate and prices of precious metals manipulation remain unresolved. The bank further confirmed that the $425 million penalty amount is materially taken into account in its current litigation provisions.
The bank also promised to continue cooperating with all other regulatory agencies investigation the mirror-trading transactions.