Sanctioned For Improper Dealings With Jeffrey Epstein, Notorious Foreign Banks
July 9, 2020
Improper dealings with the late sex offender Jeffrey Epstein resulted in a $150 million fine for Deutsche Bank. The sanction was imposed by the New York State Department of Financial Services.
In a statement, DFS’ superintendent Linda A. Lacewell said that Deutsche Bank AG, its New York branch, and Deutsche Bank Trust Company America agreed to pay the penalties as part of a consent order for significant compliance failures in connection with the bank’s relationship with Epstein and correspondent banking relationships with Danske Bank Estonia and FBME Bank.
This agreement marks the first enforcement action by a regulator against a financial institution for dealings with Epstein, who committed suicide last August while in federal custody awaiting trial.
DFS said Deutsche Bank failed to properly monitor account activity conducted on behalf of the registered sex offender despite ample information that was publicly available concerning the circumstances surrounding Epstein’s earlier criminal misconduct. The result was that the bank processed hundreds of transactions totaling millions of dollars that, at the very least, should have prompted additional scrutiny in light of Epstein’s history, including:
In a statement to the Associated Press, the German bank said the settlement with New York state “reflects our unreserved and transparent cooperation with our regulator." The bank said it had invested almost $1 billion to improve its training and controls and had boosted its staff overseeing the work to more than 1,500 employees “to continue enhancing our anti-financial crime capabilities."
In the cases of Danske Estonia and FBME, the department concluded that Deutsche Bank failed to properly monitor the activities of their foreign bank clients with respect to their correspondent and dollar clearing business.
Danske Estonia, which is at the center of one of the world’s largest money laundering scandals, suffered from inherent control failures that resulted in large quantities of money being moved on behalf of Russian oligarchs. Over the course of the years-long relationship between Deutsche Bank and Danske Estonia, Deutsche Bank was repeatedly put on notice of these failings and of the fact that few improvements were undertaken by Danske Estonia. Despite the fact that Deutsche Bank assigned Danske Estonia its highest possible risk rating, Deutsche Bank failed to take appropriate action to prevent Danske Estonia from transferring billions of dollars of suspicious transactions through Deutsche Bank accounts in New York.
Deutsche Bank’s relationship with FBME similarly represented a failure by the Bank to act on red flags concerning a correspondent banking relationship with a foreign bank. From the beginning of its relationship with FBME, Deutsche Bank considered FBME to be a high-risk client that required annual enhanced anti-money laundering checks. Despite these checks, there was little evidence that FBME improved the quality of its controls over several years. Eventually, FBME’s failings resulted in the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) mandating that all Banks operating in the United States to stop doing business with FBME. By that point, Deutsche Bank was the last major Western bank with a correspondent banking relationship with FBME.
A copy of the 38-page consent order can be found on the DFS website.