Fed warns Deutsche Bank against backsliding in anti-money laundering

The Federal Reserve told Deutsche Bank AG

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in recent weeks that the lender has failed to address persistent deficiencies in its anti-money laundering controls, according to people familiar with the matter.

The Fed’s frustration has escalated to such an extent that the bank could be fined, people said.

Deutsche Bank has devoted massive resources to resolving repeated breaches and sanctions related to the authorization of suspicious transactions. The Fed told Deutsche Bank that instead of progressing, the German lender, which has a strong presence on Wall Street, is backing down. The regulator said some of the anti-money laundering control issues require immediate attention, according to the public.

A spokesperson for Deutsche Bank said the bank was not commenting on the dialogue with regulators. A Fed spokesperson declined to comment.

The Fed’s harsh words contrast with the bank’s message that it has worked diligently to improve its systems and put most of its legal problems in the past.

The Fed’s latest warning comes four years after it classified Deutsche Bank’s US operations as in “troubled state,” a rare reprimand for a major bank. In May 2020, he issued a new warning on the bank’s money laundering controls.

In 2020, Deutsche Bank also settled with the New York Department of Financial Services the bank’s role as correspondent bank in one of Europe’s biggest money laundering scandals and for failing to properly monitored his relationship with the late financier and convicted sex offender Jeffrey Epstein.

In 2017, the Fed fined Deutsche Bank $ 41 million for failing to put in place an effective anti-money laundering program.

Deutsche Bank is Germany’s largest lender and, as a Fed-regulated dollar clearing bank, is a major player in global financial transactions.

Banks are required to control the way money flows through their networks to guard against the proceeds of criminal activity moving through the economy. They are required to know who their customers are and to report transactions that indicate potentially illegal activity to authorities.

Deutsche Bank’s financial position improved after it began an overhaul in 2019 to significantly cut costs and shut down some operations, including trading in US stocks. This year it had its strongest quarter in seven years.

Deutsche Bank officials adopted an optimistic tone at the bank’s annual meeting of shareholders on Thursday, saying the lender has found its place and is regaining market confidence. He also said he wanted to play an active role in banking consolidation in Europe.

“There has been a fundamental change in the way people see our bank,” CEO Christian Sewing said in a speech.

Mr Sewing told shareholders that the bank had “significantly strengthened our control systems,” but added that “we are also aware of areas where we need to improve,” including its efforts to fight financial crime.

The bank has struggled to shake off its reputation for loose controls. In April, BaFin, the German financial regulator, ordered the bank to take further steps to guard against money laundering. BaFin said Deutsche Bank must comply with due diligence obligations, especially during regular customer reviews. He expanded the role of a controller he appointed in 2018 to oversee implementation.

After the BaFin order, Deutsche Bank said it had significantly improved its controls, spending around $ 2.4 billion and bringing its anti-money laundering team to over 1,600 in the past two years. He admitted that he still had work to do.

Deutsche Bank also remains under the watch of external auditors appointed in 2017 by the New York Department of Financial Services in connection with a settlement of a “shadow trading” case, in which the bank moved $ 10 billion worth of money. money from Russian customers outside the country.

The Wall Street Journal reported last November that observers were alarmed at a possible expansion of the bank’s business in Russia. In October, they told the bank that efforts to improve its operations were not enough to offset the significant risks involved in doing business with Russian customers, and that the bank should instead shut down operations there.

Earlier this month, the bank appointed Joe Salama, its U.S. general counsel responsible for negotiating recent regulatory deals with U.S. officials, to head its global financial crime unit. The move was aimed at improving the bank’s relationship with regulators, according to people familiar with the situation.

Unlike his predecessor, who was based in Frankfurt, Mr. Salama will split his time between Germany and the United States.

Deutsche’s problems

More WSJ coverage of Deutsche Bank’s anti-money laundering controls and sanctions, selected by editors.

Write to Patricia Kowsmann at [email protected] and Jenny Strasburg at [email protected]

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