How Deutsche Bank Let Dirty Clients Run Rampant
21 Sep 2020

BuzzFeed News — When Robert Meltzer, who runs gyms for children in Los Angeles, found that more than $60,000 in payroll taxes — half a year’s worth — had gone missing in 2013, it was too late.

When something similar happened to Stanford Media Group, a company that sold CDs and DVDs online, Mark Gilula said he was forced to lay off employees. He said the stress contributed to his heart attack.

And when Maureen Sullivan, an architect, went looking for answers about the $111,000 that evaporated from her accounts, she said her inquiries with the police “basically went into a black hole.”

What none of these small business owners could have known was that their losses were linked to one of the most infamous international banking scandals on record.

The bookkeeper who handled their payroll allegedly embezzled their money and injected it into a notorious scheme used by crime bosses, terrorist financiers, and drug cartels. The participants laundered $10 billion of illicit money into nice clean cash.

It all happened with the help of Deutsche Bank, Germany’s biggest financial institution and one of the biggest lenders to Donald Trump. But when the enormous scandal broke, Deutsche blamed it on a few middle-level staffers in its Moscow office, paid a fine, and got back to business.

The FinCEN Files investigation reveals that Deutsche managers, including top executives, had direct knowledge for years of serious failings that left the bank vulnerable to money launderers. Documents show two warnings sent to committees that included Paul Achleitner, Deutsche’s chair, and one sent to the bank’s supervisory board.

Deutsche’s problems were so striking they prompted Bank of America to file a confidential alert known as a suspicious activity report, or SAR, to the US government. Bank of America employees had visited Deutsche’s London office to discuss worries about Russian money laundering. They were stonewalled when a Deutsche manager interrupted their meeting and asked them to leave the building. Bank of America found the situation troubling enough that it raised the matter with Achleitner, according to its filing.

Another top Deutsche executive, Christian Sewing, ran the audit division when one of its teams gave the Moscow office a clean bill of health, despite evidence that it could not even produce a list of its clients, let alone verify that they were who they said they were. Sewing is now Deutsche’s CEO.

In all, more than 100 internal alerts were raised on the companies at the heart of the Russian mirror trade scandal between 2012 and 2015.

During these years, some of the world’s worst criminals used the network to move dark money around the globe, with the help of shell companies and corrupt financiers. Business owners like Meltzer, Gilula, and Sullivan were left to pick up the pieces. The wide range of criminal activity linked to the mirror trades has never before been revealed.

The FinCEN Files investigation includes thousands of closely held US Treasury documents — among them, suspicious activity reports — that BuzzFeed News shared with the International Consortium of Investigative Journalists and more than 100 newsrooms around the world. This investigation is also based on confidential bank documents obtained by the German newspaper Süddeutsche Zeitung, a partner in this project.

By law, banks must file SARs to the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, when they spot activity that bears the hallmarks of money laundering or other financial misconduct. SARs by themselves are not evidence of a crime, but they can support investigations and intelligence gathering.

In recent years, Deutsche’s share price has plummeted under the weight of scandal after scandal. In the last decade, the bank has paid fines for everything from evading sanctions against Iran and Myanmar to rigging foreign exchange markets to doing business with Jeffrey Epstein. And it has come under scrutiny for lending Trump hundreds of millions of dollars despite his history of defaulting on loans.

The bank, responding to questions raised by this investigation, said it has acknowledged “past weaknesses” and “learnt from our mistakes,” while investing hundreds of millions of dollars to bolster its defenses against financial crimes. “We are a different bank now,” a Deutsche spokesperson said in a written response.

The spokesperson said Sewing was not personally involved in the review of the Moscow office and disputed aspects of Bank of America’s written account to the government, including the assertion that Achleitner met with an executive from that bank.

The $10 billion mirror trading scheme remains one of Deutsche’s darkest stains. While it had many tentacles, at its heart was a group of money launderers who controlled a network of anonymous companies around the world.

They would buy shares in Russia and sell the stock to one of the European shell companies they owned. As the network pinged money across the globe, it turned the rubles into dollars and other currencies. The system had one other great advantage: It allowed criminals to move their ill-gotten gains undetected.

To make it all happen, the perpetrators needed a Western bank to work with them. They found one in Deutsche. It wasn’t the only bank that was involved, but prosecutors said traders in its Moscow office were motivated by “greed and corruption” and that one supervisor had apparently been bribed to facilitate the trades.

The companies that moved the money were some of Deutsche Russia’s most active clients, at times generating bigger commissions for the bank than any of its other customers in Russia.

In one confidential letter from March 2016, never before revealed, the UK’s financial regulator privately scolded Deutsche’s willingness to take on “very profitable clients, regardless of financial crime risks.” It cautioned that “leadership on financial crime had been lacking for a considerable period of time.”

But when the agency spoke about the matter publicly, it exonerated senior managers, saying they “were not aware of the suspicious trading” and the failings at the bank had been committed “negligently, rather than deliberately or recklessly.” The regulator initially considered a fine of £1.7 billion for the scandal, but decided that would be “disproportionately high” and reduced it to £163 million.

The state of New York imposed a higher fine of $425 million but took the occasion to praise the bank’s leaders for dealing with the issue in a “serious manner and timely fashion.”

Among the recipients of cash from the mirror trades, the FinCEN Files investigation has found, was a company the US government says is part of the Russian mafia. Its owner has been identified as a liaison for Vladislav “Blonde” Leontyev, described by US authorities as a Russian mobster and a high-level narcotics trafficker. In response to BuzzFeed News, Leontyev denied any involvement in the mirror trades or other criminal activity.

Between March 2013 and April 2014, nearly $50 million in illicit funds also went to a company that is part of the Khanani money laundering organization, whose clients include Hezbollah associates, the Taliban, and Mexican drug cartels, according to the US government. (The group’s head, Altaf Khanani, was sentenced in 2017 to 68 months in prison after he laundered more than $1 million during an undercover Drug Enforcement Administration sting.)

A sporting goods supplier in Brooklyn, where the manager was found guilty of laundering money for cyberscammers, also received cash from the mirror trades. So did a New Jersey telecoms operation that did business with shell companies linked to organized crime, the Syrian weapons program, and a notorious oligarch, SARs show.

Money from a looted Russian bank where Vladimir Putin’s cousin sat on the board was also filtered into the network, records show.

All those funds were funneled into the money laundering operation along with cash from LA Payroll, the tax consulting firm whose owner allegedly defrauded 141 small businesses across Southern California. The victims included churches and not-for-profit organizations. The man behind the fraud fled the US and the money has never been recovered.

The saga of the mirror trades is not yet over for Deutsche. In its most recent annual report, Deutsche said that the Department of Justice continues to investigate, and that the bank had set aside money in case of future fines.

By Tom Warren, John Templon, Jason Leopold, Anthony Cormier, Jeremy Singer-Vine, Scott Pham, Richard Holmes, Tanya Kozyreva and Emma Loop, Buzzfeed News, 20 September 2020

Read more at BuzzFeed News

Explore the FinCEN Files data here

Photo: Mario Andreya/Deutsche Bank [CC BY-NC-ND 2.0] via Flickr

RiskScreen: Eliminating Financial Crime with Smart Technology

Count this content towards your CPD minutes, by signing up to our CPD Wallet