LONDON — Deutsche Bank has agreed to pay hundreds of millions to UK and US regulators to settle probes into whether it helped covertly move money out of Russia through a process known as “mirror trading.”
The German lender will pay $425 million (£340 million) to New York’s Department of Financial Services and£163 million the UK’s Financial Conduct Authority (FCA). The UK fine is the largest ever levied by the regulator or its predecessor.
The New York regulator announced its fine late on Monday, while the FCA announced its settlement with the regulator early on Tuesday morning.
Deutsche Bank has also agreed to hire an independent monitor for its New York branch, after the regulator found it “violations of New York anti-money laundering laws involving a ‘mirror trading’ scheme among the bank’s Moscow, London and New York offices that laundered $10 billion out of Russia. “
“Mirror trades” involved a Russian client first buying a stock in roubles from Deutsche Bank’s Moscow office. The same stock would be sold by another party with close ties to the original player in London and the trade would be paid for in dollars. Except rather than those dollars being converted into roubles for the original client, they would go to an overseas territory such as Cyprus, Estonia, or Latvia, to a bank account closely connected to the originally party.
In this way Deutsche Bank helped people move money out of Russia and also cover its tracks, moving an approximate $6 billion this way, according to regulators. 2,400 pairs mirror trades were executed between April 2012 and October 2014.
The FCA says the identities of customers who moved the money are still unknown, as is the origin of the money, but says it is “highly suggestive of financial crime.”
The FCA says a further $3.8 billion may have been laundered out of Russia through suspicious one-sided trades.
“The FCA believes that some, if not all, of an additional 3,400 trades formed one side of mirror trades and were often conducted by the same customers involved in the mirror trading,” the regulator says.
Both the New York and UK regulator found “unsafe and unsound” banking practices, serious anti-money laundering failures, inaccurate record keeping, extremely poor “know your customer” processes (designed to make sure you’re not dealing with bad guys), and understaffing and underresoucing of compliance departments.
New York Financial Services Superintendent Maria T. Vullo says in a statement announcing the fine:
“In today’s interconnected financial network, global financial institutions must be ever vigilant in the war against money laundering and other activities that can contribute to cybercrime and international terrorism. This Russian mirror-trading scheme occurred while the bank was on clear notice of serious and widespread compliance issues dating back a decade. 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.”
Mark Steward, Director of Enforcement and Market Oversight at the FCA, says in a statement:
“Financial crime is a risk to the UK financial system. Deutsche Bank was obliged to establish and maintain an effective AML control framework. By failing to do so, Deutsche Bank put itself at risk of being used to facilitate financial crime and exposed the UK to the risk of financial crime.
“The size of the fine reflects the seriousness of Deutsche Bank’s failings. We have repeatedly told firms how to comply with our AML requirements and the failings of Deutsche Bank are simply unacceptable. Other firms should take notice of today’s fine and look again at their own AML procedures to ensure they do not face similar action.”
The FCA and the New York Department of Financial Services cooperated on their investigation into Deutsche Bank.
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