Deutsche Bank AG (DBK)’s Japanese securities unit entertained officials from 45 funds that manage public pensions, according to a report obtained by Bloomberg News, signaling that the potentially illegal practice was more widespread than regulators had disclosed.
Deutsche Securities Inc. spent 22.1 million yen ($217,000) wining and dining fund officials from 2010 to 2012, according to the document prepared by the investigative arm of Japan’s financial regulator and Germany’s biggest bank. Deutsche Securities Chief Operating Officer Bret Dandoy approved expenses for two overseas trips, and Chairman Norimichi Kanari joined in the entertaining on one occasion, the report showed.
Probes into the spending triggered criminal proceedings against former Deutsche Securities salesman Shigeru Echigo, whose trial for bribing a pension official resumed in Tokyo today with the prosecution seeking a one-year prison term. Echigo reiterated his argument that the entertainment practices were widespread in the company. Regulators ordered the firm to improve internal controls in December, making it the first brokerage in Japan to be censured in the matter.
Takayuki Inoue, a Tokyo-based spokesman for Deutsche Securities, declined to comment. Kanari and Dandoy also declined to comment, Inoue said. Neither executive has been accused of any wrongdoing.
Japanese criminal law prohibits companies from providing benefits to public servants with the intention of obtaining business from them. Company officials who oversee public retirement funds as part of their assets under management are defined as civil servants.
Deutsche Securities employees entertained the pension funds to deepen relationships and promote sales of investment products, the regulator said in the report.
Dandoy and Kanari have said that they weren’t aware that pension fund officials are regarded as civil servants, the report showed. Their involvement was reported yesterday by Reuters, which cited a document prepared by the SESC.
The Securities and Exchange Surveillance Commission, a unit of Japan’s Financial Services Agency, said on Dec. 5 that Deutsche Securities provided officials from three pension funds with benefits totaling 6.3 million yen from 2010 to 2012 to persuade them to buy financial products. Among the benefits were dinners, gifts and trips to Frankfurt, London and Madrid, according to the report, which was drafted in the second half of last year.
The FSA ordered the bank to tighten internal controls a week later, and Deutsche Securities cut the pay of top executives including Dandoy, Kanari and Chief Executive Officer Makoto Kuwahara. It also disbanded the pension solution sales department, of which Echigo was a director.
Following a criminal investigation, Echigo admitted to bribery charges at a Tokyo District Court hearing in April. Prosecutors said he spent about 900,000 yen entertaining a pension fund executive on 15 occasions in 2012.
At today’s hearing, a prosecutor said Echigo’s conduct eroded trust in pension funds. He needs to reflect more on his behavior, which was motivated by career ambitions, the prosecutor said.
A lawyer for Echigo said that a fine would be appropriate because he acted on instructions from his superiors and his reputation has already suffered.
“I feel deep regret for what I did,” Echigo told the court today. “I don’t understand why I have to take sole responsibility for this series of crimes,” he added.
At the April session, Echigo said his actions were “part of systematic conduct based on the instructions and consent of my bosses at Deutsche Securities.”
Former Mitsui & Co. (8031) retirement fund executive Yutaka Tsurisawa was convicted in March of accepting benefits from Echigo and given a suspended 18-month prison sentence.
To contact the reporter on this story: Takahiko Hyuga in Tokyo at email@example.com
To contact the editors responsible for this story: Chitra Somayaji at firstname.lastname@example.org Russell Ward