New York regulators have fined Deutsche Bank $150 million after finding that the lender’s compliance staff opened at least 40 accounts for billionaire financier and accused sex trafficker Jeffrey Epstein, and failed to monitor millions of dollars in suspicious payments that followed.
Deutsche Bank, Germany’s largest by assets, also failed to properly screen $618 billion worth of correspondent transactions from FBME Bank, a now-defunct Cypriot lender which was later blacklisted by the U.S. Treasury Department, and inadequately vetted another $267 billion from Danske Bank Estonia, the New York State Department of Financial Services disclosed Tuesday.
In a 38-page consent order, DFS found that Epstein, who died in prison last year after federal authorities accused him of trafficking minors for sex, managed to open several corporate accounts at Deutsche Bank in 2013 despite having already registered as a sex offender and generated extensive news coverage related to his controversial 2007 plea agreement.
A private banker who had joined Deutsche Bank the prior year from a U.S. competitor opened most of the accounts, according to DFS.
In an April 2013 email to Deutsche Bank executives, the banker, whom DFS did not identify by name, estimated that handling Epstein’s annual transactional volume of $100 million to $300 million could bring in as much as $4 million in revenue each year.
The banker further suggested in the email that in light of the financier’s 2007 guilty plea for “underage prostitution” and his multiple out-of-court settlements, the lender should only open corporate accounts for the billionaire.
Tuesday’s consent order references a second email, dated May 13, 2013, in which an executive told the private banker that Deutsche Bank’s U.S. anti-money laundering compliance officer and general counsel had reviewed the potential relationship with Epstein and found it did not pose a significant reputational risk.
“We can move ahead so long as nothing further is identified through KYC [know-your-customer] and AML client adoptions,” the executive told the banker.
Deutsche Bank later told DFS that an internal audit found no evidence that the AML officer spoke directly with the executive who purportedly asked for the review or with any other compliance or legal staff mentioned in his email, and that the interaction at best “appears to have been an offhand conversation.”
But the executive’s summary of his alleged conversation with the compliance officer and general counsel played a crucial role in the bank’s decision from 2013 onward to open more than 40 accounts for Epstein, his associates and corporate entities linked to him, according to DFS.
Deutsche Bank’s initial ties with Epstein saw the lender open accounts for a “database company” in the U.S. Virgin Islands, and a subsidiary whose alleged purpose was to “hold marketable securities and cash.”
Deutsche Bank officially assessed Epstein as a high-risk client and “honorary PEP,” or politically exposed person, but did not stop him from sending dozens of wires to at least three alleged co-conspirators who had been publicly tied to his 2007 settlement of criminal charges.
The bank also opened an account for The Butterfly Trust, a legal entity that listed the three alleged co-conspirators as beneficiaries, fomenting a “very real risk that payments through the trust could be used to further or cover up criminal activity and perhaps even to endanger more young women,” DFS found.
Deutsche Bank maintained the various accounts even after an appeals court’s ruling raised new questions about their client’s settlement. According to DFS, the executive who approved the accounts two years earlier met with Epstein at his New York home after the ruling, and found the billionaire’s denial of the new claims against him to be credible.
An internal risk committee sought to place some restrictions on Epstein’s accounts in January 2015 but apparently without having notified AML staff who more than three years later cleared payments from the billionaire to accounts in Russia held by women with “Eastern European surnames.”
According to DFS, Deutsche Bank agreed to send the payments after Epstein explained that he intended for them to cover the women’s school tuition fees.
Between 2013 and 2018, Epstein’s attorney managed to withdraw more than $800,000 in cash from Deutsche Bank’s now-shuttered branch on Park Avenue despite having repeatedly asked frontend staff to tell him how much he could take out without triggering compliance scrutiny, DFS found.
According to the consent order, the attorney “asked a teller whether a withdrawal transaction in excess of $10,000 would require reporting and, upon being advised that it would, broke up the withdrawal transaction over two days.”
Deutsche Bank finally closed Epstein’s accounts in December 2018, one month after reporters with the Miami Herald raised questions about the Justice Department’s atypically lenient settlement of charges against the financier several years earlier.
While Epstein presented clear red flags as a client, some banks may view Tuesday’s enforcement action as further pressure to avoid serving anyone with a felony conviction, said Jay Hack, a New York-based compliance attorney with Gallet Dreyer & Berkey.
“They want the banks to conclude that where there’s smoke there’s fire. That’s true in this [Epstein] case—[but] the next week, the regulators may take the opposite position,” Hack said. “It forces the bank to make a judgment as to which criminality is problematic.”
Apart from its ties to Epstein, Deutsche Bank also failed to adequately monitor its relationship with Danske Bank Estonia, one of several lenders that handled billions of dollars for thousands of suspicious, non-resident corporate clients as part of the multiyear, “Russian Laundromat” scheme.
Deutsche Bank began handling correspondent transactions for Danske Bank Estonia in 2007 and the following year noticed a jump in non-resident customers with a Russian or “indirectly Russian” connection, according to DFS.
In early 2009, those and other red flags prompted Deutsche Bank executives in the U.S. and Germany to summon representatives of Danske Bank Estonia to a meeting in New York, at which point they received assurances that the non-resident portfolio was being dismantled.
But the number of non-resident accounts actually increased after the meeting. More than a year later, in September 2010, Deutsche Bank raised Danske Bank Estonia’s risk rating to the highest possible level.
The concerns persisted through April 2011, when, according to DFS, Deutsche Bank’s “AML compliance director” met with counterparts from Danske Bank Estonia to again raise concerns over the latter institution’s continued service of non-resident legal entities.
After an onsite visit of Danske Bank Estonia in November 2013, the AML director concluded in an internal memorandum that Deutsche Bank had compelling reasons to sever ties with the Baltic lender.
But “this draft memorandum,” according to DFS, “does not appear to have been sent to any other Deutsche Bank personnel (or third party) prior to the termination of the Danske Estonia correspondent banking relationship in October 2015.”
Deutsche Bank processed a total of $267 billion for Danske Bank Estonia during the course of their eight-year relationship, including at least $150 billion from Russia and other former Soviet states.
Deutsche Bank also handled correspondent business for FBME Bank in the 15 years up to July 2014, the month that U.S. officials blacklisted the Cypriot lender as a primary money-laundering concern under the Patriot Act.
“Deutsche Bank was the largest of the few remaining Western banks that had continued to maintain correspondent banking relationships with FBME,” DFS found.
The German lender had known of the threat presented by FBME since at least 2005, knew that it only employed two compliance officers, and, according to DFS, eventually raised the institution’s risk-rating from eight to 10, the highest possible level.
FBME ultimately triggered at least 826 suspicious transaction alerts at Deutsche Bank and routinely failed to disclose the ultimate beneficial owners behind corporate entities, one of which was controlled by a Russian businessman, whom, according to the regulator, “was affiliated with a Syrian research facility responsible for developing and producing non-conventional weapons.”
Tuesday’s penalty is not the German lender’s first run-in with DFS.
In November 2015, the regulator fined Deutsche Bank $258 million for failing to monitor billions of dollars in payments tied to U.S.-blacklisted entities in Syria, Iran and elsewhere, and in January 2017 extracted another $425 million after the lender failed to screen $10 billion in suspicious “mirror trades” between Moscow and London.
Contact Daniel Bethencourt at email@example.com
|Topics :||Anti-money laundering , Know Your Customer|
|Source:||U.S.: Department of Justice , U.S.: NYS Department of Financial Services|
|Document Date:||July 7, 2020|