The Financial Conduct Authority ('FCA') has today issued a £163 million fine to Deutsche Bank AG ('Deutsche Bank') for failing to maintain an adequate anti-money laundering ('AML') control framework. Due to the seriousness of the issues identified, this represents the largest financial penalty ever raised by the FCA, and its predecessor, for AML control failings.
Further to its investigation, the FCA has established that Deutsche Bank failed to organise and control its affairs responsibly and effectively and did not maintain an effective AML control framework in its Corporate Banking & Securities ('CB&S') division in the UK between 1 January 2012 and 31 December 2015.
The FCA found that Deutsche Bank had significant deficiencies throughout the systems and controls in place for the identification and prevention of the risk of financial crime. In particular the FCA found:
- the CB&S division in the UK failed to perform adequate customer due diligence;
- the CB&S division failed to instil a sense of responsibility in the London Front Office that it was ultimately responsible for the Bank’s know-your-customer obligations;
- the risk rating methodology utilised was flawed and did not provide a basis for transaction monitoring;
- the AML policies in place were insufficient;
- the IT systems used were inadequate, in particular as they lacked a single automated system for detecting suspicious activity;
- the CB&S division failed to provide adequate oversight of the trades booked to Deutsche Bank UK’s trading book by traders in non-UK jurisdictions.
The FCA also established that, in the 4 years under review, customers could be on-boarded by overseas Deutsche Bank offices as clients of Deutsche Bank UK without the involvement or oversight of the UK’s Front Office. It was also common practice for trades to be executed into Deutsche Bank’s trading book by traders not based in the UK, with the risk of leaving those trading activities outside the oversight and supervision of the UK entity.
In fact, the front office of Deutsche Bank’s Russian subsidiary ('DB Moscow') managed to execute more than 2,400 mirror trades between April 2012 and October 2014, which enabled customers of Deutsche Bank and DB Moscow to transfer more than $6 billion from Russia, through Deutsche Bank UK, to bank accounts in overseas countries including Cyprus, Estonia and Latvia. The purpose of those mirror trades was to facilitate the conversion of Roubles to US Dollars as well as the highly suspicious transfer of large sums from Russia to overseas accounts.
Overall, the FCA determined that the practice described above and the weak monitoring systems in place at the bank, were strong indicators of financial crime. Deutsche Bank was found in breach of Principle 3 by failing to take reasonable care to organise its affairs responsibly and effectively, with adequate risk management systems and also in breach of the essential systems and controls requirements in SYSC 6 that prescribe the obligation to ensure that a firm’s AML control framework is comprehensive and proportionate to the nature, scale and complexity of its activities and the Firm’s ability to identify, assess, monitor and manage its money laundering risk.
The FCA’s strong approach to combating financial crime remains one of its highest priorities as is demonstrated by the exemplary action taken against Deutsche Bank in this instance, and is also supported by the extensive thematic work and skilled persons reviews that have increasingly extended their reach to regulated firms of all types and sizes.
In the same way as the FCA has done in its press release, we would prompt all firms to understand the types of failings identified in the Deutsche Bank case and the reasons behind the FCA’s decision to issue the largest fine in the area of AML breaches. This kind of action is not to be regarded as an isolated event and should represent an incentive for firms to re-assess the effectiveness and resilience of their systems and controls for the prevention of financial crime.
Moore Stephens has extensive experience in assisting all types of firm to establish a solid framework for the identification and prevention of financial crime. If you would like to have full reassurance that your firm is meeting all regulatory requirements and complies with the highest AML standards, please consider our Financial Crime Health Check programme and contact us for a complete review of your systems and controls.