US regulators in New York have also fined the bank £340m making total fines for the bank of approximately £500m. The money laundering failures took place between January 2012 and December 2015 and involved the banks’ New York, London and Moscow offices.
The watchdog says it is the the largest financial penalty for AML controls failings ever imposed by the FCA, or its predecessor the Financial Services Authority (FSA).
The FCA said that Deutsche Bank exposed the UK financial system to the risks of financial crime by failing to properly oversee the formation of new customer relationships and the booking of global business in the UK.
As a consequence of its “inadequate” AML control framework, Deutsche Bank was used by unidentified customers to transfer approximately $10 billion, of unknown origin, from Russia to offshore bank accounts in a manner that is “highly suggestive of financial crime.|
Mark Steward, director of enforcement and market oversight at the FCA, said: “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 specifically found that, during the relevant period, Deutsche Bank’s Corporate Banking and Securities division (CB&S) in the UK:
· performed inadequate customer due diligence;
· failed to ensure that its front office took responsibility for the CB&S division’s Know Your Customer obligations;
· used flawed customer and country risk rating methodologies;
· had deficient AML policies and procedures;
· had an inadequate AML IT infrastructure;
· lacked automated AML systems for detecting suspicious trades; and
· failed to provide adequate oversight of trades booked in the UK by traders in non-UK jurisdictions.
As a result of these failings Deutsche Bank failed to obtain sufficient information about its customers to inform the risk assessment process and to provide a basis for transaction monitoring. The failings allowed the front office of Deutsche Bank’s Russia-based subsidiary (DB Moscow) to execute more than 2,400 pairs of trades that mirrored each other (mirror trades) between April 2012 and October 2014.
The mirror trades were used by customers of Deutsche Bank and DB Moscow to transfer more than $6 billion from Russia, through Deutsche Bank in the UK, to overseas bank accounts, including in Cyprus, Estonia, and Latvia. The orders for both sides of the mirror trades were received by DB Moscow, which executed both sides at the same time.
The customers on the Moscow and London sides of the mirror trades were connected to each other and the volume and value of the securities was the same on both sides. The purpose of the mirror trades was the conversion of Roubles into US Dollars and the covert transfer of those funds out of Russia, “which is highly suggestive of financial crime.”
As a result, Deutsche Bank breached Principle 3 (taking reasonable steps to organise its affairs responsibly and effectively, with adequate risk management systems) of the FCA’s Principles for Businesses. In addition, Deutsche Bank also breached Senior Management Arrangements, Systems and Controls (SYSC) rules 6.1.1 R and 6.3.1 R.