Deutsche Bank Ends N.Y. Mirror-Trade Probe for $425 Millionby and
Separate U.K. deal said to include an additional penalty
U.S. said to continue criminal investigation of Moscow trades
Deutsche Bank AG has taken the first step to resolve allegations that it helped wealthy Russians launder billions of dollars, reaching a deal with New York’s Department of Financial Services that requires it to pay a $425 million penalty, the regulator said.
The New York settlement, approved by the bank on Monday, resolves allegations that Deutsche Bank employees used a “mirror-trading scheme” to help wealthy Russians move $10 billion out of that country from 2011 through 2014. The New York regulator said it appears that a close relative of a Deutsche Bank supervisor in Moscow received bribes worth a quarter million dollars so that the supervisor would clear the trades.
The bank is also poised to reach a similar agreement with the U.K.’s Financial Conduct Authority that will include an additional penalty of several hundred million dollars, a person familiar with the matter said.
The highest-profile probe into the matter is still under way. Federal prosecutors in the U.S. are pursuing a criminal investigation into whether the German lender’s internal controls failed to pick up the scheme, people with knowledge of the matter have said.
In addition to the financial penalty to the New York regulator, the bank will have to hire an independent monitor, its sixth in the U.S., according to Bloomberg research.
“This Russian mirror-trading scheme occurred while the bank was on clear notice of serious and widespread compliance issues dating back a decade,” DFS Superintendent Maria Vullo said in a written statement. “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.”
The $425 million fine is the largest enforcement penalty assessed by Vullo since she was named to lead the agency a year ago. She praised the bank for cooperating with the investigation.
The New York deal comes weeks after Deutsche Bank agreed to a $7.2 billion civil penalty to resolve a U.S. investigation into its sales of toxic mortgage debt. While the bank has been pressing to wrap up regulatory reviews, investigations into whether it manipulated foreign-currency rates and precious metals prices haven’t been resolved.
Monday’s settlement with Vullo is “materially reflected” in the firm’s existing reserves for litigation, the company said in a statement. It pledged to continue cooperating with other authorities looking into the trades.
Mirror trades allowed Deutsche Bank counterparties in Russia to buy local blue-chip shares for rubles, while the same stocks would be sold in London for dollars, reviews conducted by the German lender and the local central bank determined.
Although such trades are legal in some cases, U.S. Justice Department prosecutors were examining whether Deutsche Bank broke anti-money-laundering protocols by not properly vetting them, people familiar with the matter have said. An internal audit by Deutsche Bank found a “systemic” failure in internal controls meant to prevent money laundering and financial crime.
The criminal investigation is proceeding even as the Justice Department is undergoing a leadership change. The U.S. Senate is expected to vote on President Donald Trump’s nominee for attorney general, Senator Jeff Sessions of Alabama, within days.
A consent order with the DFS signed by the bank describes its Moscow office as a place where some traders, focused on the lucrative commissions generated by the trades, ignored obvious red flags.
The lax controls “allowed a corrupt group of bank traders and offshore entities to improperly and covertly transfer more than $10 billion out of Russia, by conscripting Deutsche Bank operations in Moscow, London and New York to their improper purpose,” the consent order said.
In April and June of 2015, one of the bank’s mirror-trading clients wired payments totaling $250,000 to a company owned by the close relative of the supervisor, according to the order. This relative owned two companies, one located in the British Virgin Islands and the other on Cyprus. The companies ultimately received about $3.8 million in payments for “financial consulting,” according to the consent order, even though this relative of the Deutsche Bank supervisor had a background in art history, not finance. The payments originated from two companies registered in Belize.
The supervisor wasn’t named in the consent order, but a person briefed on the matter identified him as Tim Wiswell, a former head of equities in Deutsche Bank’s Moscow office. Wiswell’s wife, Natalia, is a Russian artist.
Wiswell couldn’t immediately be located. He didn’t respond to previous requests for comment.
Since its internal audit, the bank has cut much of its operation in Russia. It has also reorganized its regulation, compliance and anti-financial-crime operations into a new structure with a global overseer.
New York’s Department of Financial Services oversees banks chartered in New York. The U.K. authorities are interested in Moscow trades that were cleared in London.
Deutsche Bank is to release its fourth-quarter earnings results on Thursday.