Deutsche Bank SEC case showing ‘classic’ nepotism in Russian hires

Bloomberg

Deutsche Bank AG executives were outraged. They had just missed out on a major deal with the Russian government and wanted answers.
“We must use whatever tactic and political pressure to avoid this embarrassment,” a senior banker in London wrote in an email to the firm’s top executive in Russia. “DB not participating is a slap in our face.”
The solution that Deutsche Bank allegedly came up with: permanently hiring the daughter of Dmitry Pankin, a Russian deputy finance minister. Up to that point, Pankin’s daughter Elena Arkhangelskaya had been a temporary employee.
Within days of Arkhangelskaya landing a permanent position, Pankin asked Deutsche Bank to submit a proposal on a $2.2 billion bond sale. Soon after, Pankin and his daughter joined the firm’s
Russia head on a vacation, going hunting, fishing and enjoying helicopter rides. Deutsche Bank, which falsely documented the trip as a legitimate business expense, scored the bond deal.

Fraught Relationship
The incident from around 2009 was revealed in a settlement with the US Securities and Exchange Commission (SEC), which accused Deutsche Bank of violating anti-bribery laws. The allegations add another chapter to the Frankfurt-based bank’s fraught relationship with Russia. Its aggressive pursuit of business in the country has resulted in hundreds of millions of dollars in fines, congressional probes and seemingly endless compliance headaches.
In the accord with the SEC, Deutsche Bank agreed to pay $16.2 million without admitting or denying any wrongdoing. While the SEC’s order didn’t name any individuals, three people with direct knowledge of the matter said those described in the case include Pankin and Arkhangelskaya.
“Deutsche Bank provided substantial cooperation to the SEC in its inquiry and has implemented numerous remedial measures to improve the bank’s hiring practices,” bank spokesman Troy Gravitt said in an email statement.

Illicit Hires
Deutsche Bank is far from the first firm punished for allegedly making illegal hires overseas to win business — JPMorgan Chase & Co. was penalized $264 million in 2016 over similar claims and Credit Suisse Group AG agreed to pay $77 million almost two years later. But Deutsche Bank is the first firm accused of such misconduct involving Russia.
The country has long been a source of scandal for Deutsche Bank. In 2017, the bank paid more than $670 million to US and UK authorities over claims that it helped rich Russians move $10 billion out of their country through so-called mirror trades — simultaneous stock trades in separate jurisdictions that bypassed customary hoops for transferring money.
And the Democrat-led House Financial Services Committee has opened a broad investigation into Deutsche Bank’s dealings with Russia and loans the bank made to President Donald Trump’s business empire.
The hiring outlined in the SEC case, which also involved alleged wrongdoing in China, lasted from at least 2006 through 2014.
Firm Liability
Deutsche Bank employees created false books and records that concealed corrupt hiring practices, according to the SEC. Individuals who were offered jobs typically bypassed the bank’s highly competitive and merit-based process, which required that they have high grades in school and went through multiple rounds of interviews.
One Russian hire who worked in London performed so badly that a human resources employee deemed him “a liability to the reputation of the program, if not the firm,” the SEC said. The employee, the son of a senior executive of a Russian state-owned entity, failed to show up for work and was accused of cheating on an exam.
“The classic nepo situation that we have every year,” the Deutsche Bank human resources employee wrote in an email to another worker.