On the 6th of July 2020, the New York State Department of Financial Services achieved a settlement with Deutsche Bank AG for violations of the Federal Bank Secrecy Act, justified by paragraphs 39 and 44 of the New York Banking Law. The settlement covers the dealings and operations of Deutsche Bank with Jeffrey Epstein and related entities, as well as its dollar-clearing and thus correspondent activities for the Federal Bank of the Middle East (FBME) and the Estonia branch of Danske Bank, previously known as Sampo Bank.
United States Banking Law appoints financial institutions in their role as gatekeepers to protect its value transfer system. As such, banks are required to report suspicious currency transactions and other suspicious activities to the regulator. The United States claims jurisdiction over all global USD transactions and therefore can scrutinize SWIFT data and incoming transactions with the help of the participating clearing banks. Adequate anti-money laundering systems implemented by financial institutions should prohibit the inflow of obscure transactions in US Dollar denominations.
AML controls aim to prevent bank customers to engage in and facilitate criminal activity. Know Your Client (KYC) and enhanced customer due diligence reviews allow the bank to understand and detect illicit financial activity. Failure to comply with the applicable laws may result in liability for the financial institution when it maintains a customer relationship with high risk clientele.
The late Jeffrey Epstein held corporate and personal accounts with the bank, including Southern Trust Company Inc., Southern Financial LLC, and the Butterfly Trust. Even though the client was classified as a (honorary) Political Exposed Person, transactions to co-conspirators in his criminal offenses were approved, and additional red flags were addressed, the bank only terminated the relationship with Epstein cs in 2018.
The Department argues that the correspondent relationships Deutsche Bank held with FBME and Danske Bank were monitored and managed inappropriately. Both banks were associated with money laundering linked to organized crime. Upon request of Deutsche Bank, FBME Bank allowed client confidentiality and privacy regulation prevail over disclosure of beneficial ownership and further transaction details. Over the course of the correspondent relationship, Deutsche Bank cleared 618 Billion USD for FBME clients in 478.379 transactions. The Department concludes that the high-risk nature of the FBME relationship, the red flags, numerous suspicious transactions, and overt lack of transparency exhibited by FBME should have prompted Deutsche Bank to exit the relationship before the 311 designation classifying FBME a foreign financial institution of primary money laundering concern. Yet, it failed to do so. The volume and nature of suspicious activity in its dealings with Danske Bank, whilst the Estonia branch was not cooperative enough and its failure to improve its internal processes and AML controls proved to be a basis for closure already in 2013, it took until 2015 before the relationship was terminated. Deutsche Bank processed 1.638.844 transactions for Danske Bank Estonia, for a total of 267 Billion USD.
Following its findings, the Department observes that Deutsche Bank failed to detect and report a large number of suspicious transactions while it should have ended the relationship with the high-risk customers. Therefore, the Department and Deutsche Bank have agreed that the bank shall pay a penalty to the Department in the amount of one hundred fifty million US Dollars.
During recent years, Deutsche Bank has been criticized and fined for its role in the manipulation of interest rates; the bundling, packaging and sale of obscure mortgage assets in the era leading to the global financial crisis; and a mirror trading scheme that allowed notably Russian clients to migrate an estimate of 10 Billion USD into offshore accounts.