Deutsche Bank Tally of Suspect Russia Trades Said at $10 Billion
- Beyond mirror trades, $4 billion in transactions were flagged
- Regulators said to have received review results in September
Deutsche Bank AG has identified as much as $4 billion in suspicious transactions related to its Russian operations, in addition to $6 billion in so-called mirror trades it is examining, said several people with knowledge of the bank’s review of the matter.
That means the Frankfurt-based bank flagged as much as $10 billion in total trades that may not have been vetted for money laundering as clients moved money out of Russia. Among the previously unreported trades under scrutiny are ones that consistently went in the same direction — primarily buy orders, for example — according to people familiar with the matter.
Germany’s largest lender shared those findings with international authorities in September, according to two people familiar with the bank’s report on the trades. U.S. prosecutors were previously reported to be looking into whether Deutsche Bank’s handling of the mirror trades may have violated U.S. anti-money laundering rules. The U.S. officials have also been made aware of the additional suspicious trades, said the people familiar with the matter.
While Russia’s central bank levied a small fine on Deutsche Bank after looking into some of the bank’s trading in the country, the U.S. Justice Department’s investigation continues. Should regulators find violations in laws or regulations, the overall tally of trades could be one factor in deciding an ultimate fine or penalty. U.S. Justice Department spokesmen declined to comment.
Deutsche Bank’s internal review, conducted over the past year, came as many of the lender’s other activities drew international scrutiny. During that time, the bank paid about $2.75 billion to settle a U.S. probe into sanctions-law violation and U.S. and British investigations into the rigging of benchmark interest rates, admitting misconduct in both cases. It has also disclosed it is under U.S. investigations related to potential currency-market rigging and metals-price manipulation.
Same Accounts
The first indication that the bank was reviewing its Russian operation emerged in June, when people familiar with the matter said the bank was looking into several years of mirror trades — in which clients bought shares in Russia and simultaneously sold similar shares abroad in foreign currency — beginning in 2012.
As the bank examined whether the mirror trades were subject to proper internal controls, it asked similar questions that led it to the other $4 billion or so in transactions, said the people familiar with the review. Some of those trades were connected to the same accounts that benefited from the mirror trades, the people said.
Deutsche Bank said in October that its review of Russian transactions had turned up violations of its internal policies and deficiencies in controls. It told investors that it had increased its litigation reserves by 1.2 billion euros ($1.3 billion), mainly to cover possible liabilities related to its Russia operation.
The bank declined to comment on the broader tally of trades. Amanda Williams, a spokeswoman, referred to an interim report put out in October, which disclosed that the bank is investigating a “significant” volume of offsetting equity trades by clients in Moscow and London. Regulators and law-enforcement agencies in Germany, Russia, the U.K. and U.S. have been advised of the review, according to the statement.
Russia Sought Review
The bank’s internal review of its Russia trading began after the country’s central bank asked it in October 2014 to review certain clients’ accounts, people familiar with it have said.
The mirror trades, as described in a Russian central bank report earlier this year on Deutsche Bank, involved clients buying Russian shares for rubles in Moscow and simultaneously selling them in London, usually for dollars, according to people familiar with the central bank’s findings.
That sort of trade, while legal in some circumstances, can also be used to skirt U.S. rules on reporting large international movements of money.
Assets in some of the accounts under review at Deutsche Bank were believed to belong to close associates of Russian President Vladimir Putin, people familiar with the matter have said. These associates include a relative of the president and two of his longtime friends, Arkady and Boris Rotenberg, the people said.
Fine of $5,000
There’s no indication that the Rotenbergs or other individuals possibly linked to the accounts are under investigation for the trades. A representative for the Rotenbergs reiterated on Dec. 21 that the brothers weren’t involved in any such transactions. A Kremlin spokesman has declined to comment on what he characterized as unsubstantiated allegations.
The Russian central bank, which examined about a year of mirror trades, fined Deutsche Bank the equivalent of about $5,000, largely for procedural shortcomings, according to people familiar with the report. The Russian regulator concluded the bank was a victim of an illegal scheme and had addressed its technical shortcomings, according to a person familiar with the central bank’s findings. The Russian central bank declined to comment.
In recent months, Deutsche Bank shut much of its Moscow operation, saying it wanted to simplify operations. It also said it has taken disciplinary action against individuals in the matter. In November, the bank said it would stop accepting new customers in locations with high risk ratings while it reviews how it vets account-holders.
Source: Bloomberg – Deutsche Bank Tally of Suspect Russia Trades Said at $10 Billion
