26 May 2019
It seems a safe bet that, at some point in the last few days, more than one Deutsche Bank employee has made use of a well-worn but often apt observation about rain and how it sometimes pours.
The German lender’s week began with a bombshell report by The New York Times on Sunday citing claims by five current and former bank employees that the institution’s management unduly blocked the filing of multiple suspicious activity reports (SARs) tied to President Donald Trump, his son-in-law Jared Kushner, their various corporate entities and Russian businesses and individuals.
A Deutsche Bank spokeswoman denied that the lender’s management had prevented the draft compliance reports from advancing to the US Financial Crimes Enforcement Network (FinCEN), but the denial contradicted on-the-record statements from a former Deutsche Bank anti-money laundering specialist who has related her concerns to the SEC.
By Tuesday, the fallout had spread to the US Treasury Department when questions about the allegations dominated a Senate Banking Committee hearing on AML and beneficial ownership data. Democratic lawmakers grilled FinCEN Director Kenneth Blanco about his bureau’s response to the news.
“If FinCEN is not already in touch with the whistleblower, in my view, that’s gross negligence,” one senator told the bureau director.
Blanco’s boss, US Treasury Secretary Steven Mnuchin, fared no better during a House Financial Services Committee hearing the following day, when lawmakers urged him to prioritize investigating the claims.
“I’m going to have FinCEN follow up and make sure that Deutsche Bank, like anyone else, has SARs policies that are on everyone,” Mnuchin told lawmakers.
Deutsche Bank had disclosed earlier Wednesday that poorly defined software parameters had resulted in its failure to flag suspicious transactions related to corporate and investment bank clients since around 2010. A Deutsche spokesman told the Financial Times that the errors had impacted several of its anti-financial crime systems.
Later that day, a federal judge ruled against a lawsuit seeking to block congressional subpoenas ordering Deutsche Bank and Capital One to turn over records related to Trump’s financial activity.
The news reports and hearings were particularly ill-timed for the German bank, which had scheduled its annual general meeting for Thursday, just as its shares hit a new record low. Shareholders largely directed anger about the lender’s market performance toward Deutsche Chairman Paul Achleitner, who saw his share-capital support drop by 12 percentage points compared to the previous year, according to Bloomberg.
In light of the bank’s underperformance and recently failed merger talks with Commerzbank, Deutsche will implement “tough cuts” to its investment arm this year, the bank’s CEO told shareholders. The lender’s chief regulatory officer, Sylvie Matherat, is also likely to be replaced within months as pressure on the former French central bank official has grown alongside regulatory criticism of the institution, sources told the Financial Times.
What other compliance changes lie ahead for the bank remains to be seen.
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