Deutsche Bank has “serious” and “systemic” failings in its controls against money laundering, terrorist financing and sanctions, according to confidential findings by the UK’s financial watchdog, which had already put the lender in supervisory “special measures”.
The Financial Conduct Authority conducted an in-depth review last year that found a catalogue of shortcomings at the bank, ranging from missing documents and a lack of transaction monitoring to inappropriate pressure put on staff to take on certain clients. The watchdog has now ordered a separate independent review, according to a recent letter sent by the FCA to Deutsche.
“Our overall conclusion was that DB UK had serious AML (anti-money laundering), terrorist financing and sanctions failings which were systemic in nature,” said the FCA’s letter, dated March 2. “Effective senior management engagement and leadership on financial crime had been lacking for a considerable period of time.”
The FCA’s findings are another blow to Germany’s biggest lender, which has been beset by misconduct issues including the rigging of Libor and is subject to an investigation into $ 10bn of suspicious Russian trades. Last week, the Frankfurt-based company was caught up in a storm after one of its board members resigned following a clash over how to deal with past scandals.
In the wake of its review across Deutsche’s offices in the UK, India and Dublin, the FCA has ordered a so-called skilled persons report — sometimes known as a Section 166 report — to assess remedial work Deutsche must now carry out. These reports typically take many months to complete. Their findings can then spark an FCA enforcement investigation, which also normally take months before any conclusions and penalties are published.
Deustche said: “We understand the importance of this issue and are committed to and engaged in fixing it.”
Effective senior management engagement and leadership on financial crime had been lacking for a considerable period of time
– UK Financial Conduct Authority
The watchdog’s letter also pointed to Deutsche having “voluntarily agreed” not to take on new high-risk clients as a result of the findings. John Cryan, co-chief executive, told staff in November that the bank would stop taking on new clients in certain parts of the world while it reviewed its vetting practices. Germany’s biggest lender has also undergone a sweeping overhaul of its management since the FCA’s review, with the watchdog acknowledging improvements in the new regime at the bank.
Cracking down on financial crime — and institutions that facilitate or turn a blind eye to it — is a priority for the FCA, particularly in the wake of the Panama Papers scandal. In recent years, authorities around the world have tackled banks’ lax controls against such crimes, with US authorities levying financial penalties against HSBC, Standard Chartered and others.
The FCA’s conclusions come after Deutsche’s participation in the watchdog’s anti-money laundering programme, which is testing 14 major banks’ controls against financial crime, one lender at a time. It is a programme overseen by the FCA’s supervision rather than enforcement team, meaning any remedies ordered are usually not made public.
We understand the importance of this issue and are committed to and engaged in fixing it
– Deutsche Bank
It is separate to the FCA’s “enhanced supervision” that Deutsche has been subject to after a series of regulatory failures, including the rigging of Libor, for which it paid a record $ 2.5bn.
The programme is also distinct from an enforcement investigation into $ 10bn of suspicious trades involving its Russian business. The FCA is unlikely to report its findings in that probe this year, according to people familiar with the matter. US and German authorities are also scrutinising the allegations.
But Deutsche’s internal investigation into the Russian mirror trades, labelled Project Square, made “consistent” findings with the FCA’s anti-money laundering programme, according to the March letter.
The FCA declined to comment.
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