12 Jun 2019
Deutsche Bank has identified serious failures in its screening of cheques and high-value electronic payments for anti-money laundering (AML) and sanctions compliance purposes, the lender told the Financial Times.
The lapses, which went undetected for years and were discovered as the result of an internal audit, include a “filtering gap” that affected its monitoring of cheques written by corporate customers to foreign entities, according to the FT.
Although bank employees identified the filtering gap more than six months ago, the issue has yet to be resolved and the lender has not determined how many years the problem went undetected or how many cheques it processed without proper screening, according to the report. The gap affected only three publicly listed corporations considered to be “low-risk” clients of the bank, the news outlet said Monday.
The filtering issue is only one of six “core deficiencies” cited in the audit report, and may not be the worst of Deutsche’s compliance problems, which are of such severity and variety that the audit team warned bank executives that the institution could be deemed noncompliant with the EU Fourth Anti-Money Laundering Directive, the FT said.
In 2014, Deutsche Bank identified two separate “critical failings” in its monitoring of high-value payments and its use of Swift’s interbank payment messaging protocol, the newspaper said. The lender’s compliance and audit teams have subsequently classified the still-unresolved issues as significant enough to merit potential enforcement actions by German supervisory authority BaFin.
Under BaFin’s scale of AML violations, the so-called F3 and F4 violations are both considered “grave” deficiencies, while the latter is qualified as an “extremely grave deficiency” that “significantly impairs or totally eliminates” related compliance controls, according to the report.
All told, Deutsche Bank’s audit team found more than a dozen “critical” and “significant” compliance failures, including shortcomings in its customer screening in Hong Kong, India and Singapore and poor oversight of staff sending sensitive internal data over WhatsApp and personal email accounts, according to the report.
The disclosure follows a series of damaging reports about the bank’s compliance controls, including allegations by current and former Deutsche Bank staff that the institution’s managers blocked the filing of multiple suspicious activity reports (SARs) on transactions tied to President Donald Trump, his son-in-law Jared Kushner and unnamed offshore entities.
A whistleblower and others cited in the report by The New York Times characterized the decision not to file the draft SARs as an effort by the bank to protect its wealthy clients.
Spokespersons for Deutsche Bank have repeatedly denied that the draft reports were shelved for undue reason and have strongly refuted the whistleblower’s claims that she was fired over her concerns about the bank’s compliance efforts.
A 2018 internal audit report reported on by The Guardian in April concluded that Deutsche Bank “very likely” processed illicit transactions linked to the so-called “Russian Laundromat” network, and that the transactions could potentially result in monetary settlements, related litigation, client attrition and prosecutions of individual executives tied to the violations.
Last week, Sueddeutsche Zeitung reported that German prosecutors have expanded an investigation into a purported tax-stripping scheme to include 70 current and former Deutsche Bank executives, Reuters said. Included among the suspects is Garth Ritchie, the current head of Deutsche’s investment banking arm, according to the news outlet.
Upon reviewing the audit findings cited by the Financial Times, the bank’s executives determined that the cheque-related filtering gap did not merit a formal disclosure to UK and German regulators, according to the newspaper.
“We carried out a regular scheduled audit into our cheque processing processes, which was completed last year and did not identify any AML or sanctions breaches,” Deutsche said in a statement that also outlined the institution’s recent investments in its anti-financial crime capabilities and Swift IT system.
BaFin, which in September installed a third-party monitor at the bank to supervise its AML efforts, took additional steps to strengthen its scrutiny in February, following a report that the lender had processed as much as €160 billion in suspicious payments allegedly linked to a second Russian money laundering ring that exploited Danske Bank’s Estonian unit.
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