Deutsche Bank AG was fined $629 million by UK and US authorities for compliance failures that saw the bank help wealthy Russians move about $10 billion out of the country using transactions that were likely thinly veiled attempts to cover up financial crime.
The UK Financial Conduct Authority issued a 163 million-pound ($204 million) fine on Tuesday hours after New York’s Department of Financial Services fined the bank $425 million, for failures over the so-called “mirror-trades.” A criminal investigation by the US Justice Department is ongoing into the trades, which were used to convert rubles into dollars and transfer the money out of Russia.
The deals come weeks after Deutsche Bank agreed to a $7.2 billion settlement to resolve a U.S. investigation into its sales of toxic mortgage debt. While the bank has been pressing to wrap up regulatory reviews, investigations into whether it manipulated foreign-currency rates and precious metals prices haven’t been resolved.
From April 2012 to October 2014, mirror trades were used by Deutsche Bank customers to transfer more than $6 billion from Russia, through the German lender’s arm in the U.K., to overseas bank accounts including in Cyprus, Estonia, and Latvia, the FCA said. Another nearly $4 billion in suspicious “one-sided trades” were also carried out.
Deutsche Bank chief administrative officer Karl von Rohr said in a memo to staff that the bank is “making progress” toward resolving the investigations.
“We are cooperating with other regulators and law enforcement authorities, which have their own ongoing investigations into these securities trades,” von Rohr said in the memo, which was published on the bank’s website Tuesday. “We have some way to go until we can put our major legacy legal matters behind us, but we continue to pursue their resolution step-by-step.” The mirror trades allowed clients to buy local blue-chip shares for rubles, while the same stocks would be sold in London for dollars, in order to obtain the US currency. Although such trades can be legal, there were a lack of controls in place at Deutsche Bank to prevent money laundering and other offenses.
The New York regulator said on Monday it also appeared a close relative of a Deutsche Bank supervisor in Moscow received bribes worth a quarter million dollars so that the supervisor would clear the trades.
“Financial crime is a risk to the UK financial system,” Mark Steward, director of enforcement and market oversight at the FCA, said in a statement. “We have repeatedly told firms how to comply with our anti-money laundering requirements and the failings of Deutsche Bank are simply unacceptable.”
Fines to settle the probes into Russian securities trades were “materially reflected in existing litigation reserves,” Deutsche Bank said in a separate statement on Tuesday morning. The bank received the FCA’s standard 30 percent discount on the bulk of the penalty for cooperating with the probe at an early stage.
Nearly 6,000 pairs of suspicious mirror trades were carried out during the period, the FCA said.
Shares of the Frankfurt-based bank rose as much as 2.1 percent when markets opened Tuesday. The lender is scheduled to release its fourth-quarter earnings results on Thursday.
“Removing uncertainties is great news,” said Neil Smith, an analyst with Bankhaus Lampe KG, who has a buy rating on Deutsche Bank. “And it’s largely covered by provisions, which means there shouldn’t be a big impact on profit. This came earlier than expected.”