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New York State Enforcement Spotlight -- Deutsche Bank

Posted  November 6, 2015

By the C|C Whistleblower Lawyer Team

On Wednesday, the New York State Department of Financial Services (NYDFS) announced that Deutsche Bank will pay $258 million for New York Banking Law violations stemming from financial transactions it made on behalf of countries and entities subject to US sanctions.  Specifically, the government found that from at least 1999 through 2006, Deutsche Bank conducted more than 27,000 transactions valued at more than $10.86 billion on behalf of Iranian, Libyan, Syrian, Burmese, and Sudanese financial institutions and other entities subject to US economic sanctions.  See NYDFS Press Release.

According to the government, Deutsche Bank employees used a variety of mechanisms to handle dollar payments in non-transparent ways that circumvented the controls designed to detect potentially-problematic payments.  One such method was wire stripping which removed from the payment message information which would connect the payment to a sanctioned entity.  This ensured the payment message did not raise red flags in any filtering systems or trigger any additional scrutiny or blocking that otherwise would have occurred if the true details of the payment were included.

A second method was the use of non-transparent cover payments.  This involved splitting the message payment into two message streams — one with all the details sent directly to the beneficiary’s bank; the other, which did not include details about the underlying parties to the transaction, sent to Deutsche Bank New York or another correspondent clearing bank in the US.  In this way, no details that would have otherwise suggested an illicit connection to a sanctioned country and resulted in blocking the transactions were included in the payment message sent to the US bank.

The government collected a mountain of evidence demonstrating the culpability and intent of numerous bank employees in violating the US sanctions laws.  For example, a relationship manager who handled significant business for Iranian, Libyan, and Syrian customers explained the need for special measures in an email to colleagues: The Bank employs “specific precautionary measures that require a great deal of expertise” because “[i]f we make a mistake, the amounts to be paid could be frozen in the USA and/or DB’s business interests in the USA could be damaged.”  Likewise, the Assistant Vice President who oversaw payments processing explained to a colleague who inquired about Iranian payments, the Bank needed to employ “tricks and cunning” in the payment messages because of the US sanctions restrictions otherwise applicable to sanctions-related payments.

In a particularly noteworthy exchange, a senior compliance executive told a non-US relationship manager who was asking about the possibility of doing business with a Syrian customer that Compliance “agreed to do business on a low key level without public announcements etc.”  Later, when that relationship manager was offering advice to another non-US colleague about assisting a client who needed to make and receive US dollar payments with Iranian and Syrian connections, he cautioned his colleague: “As usual, let’s not revert to the client in writing due to the reputational risk involved if the e-mail goes to wrong places.  Someone should call [the client] and tell them orally and ensure that the conversation is not taped. ”

In announcing the settlement, Acting NYDFS Superintendent Anthony J. Albanese said: “We are committed to investigating and pursuing sanctions violations and money laundering at financial institutions.  We are pleased that Deutsche Bank worked with us to resolve this matter and take action against individual employees who engaged in misconduct. To truly deter future wrongdoing, it is important to focus not just on corporate accountability, but also individual accountability.”

Tagged in: Financial Institution Fraud, Money Laundering,