The Panama Papers leak continues to resonate across the globe with revelations, both salacious and otherwise, about the hiding of vast sums of wealth through shell corporations. One of the fallouts from these revelations has been the bank counterparties involved in the worldwide shell game to hide assets—both ill-gotten and legitimate. For even if a shell company is created, the money must be laundered somewhere by someone. That someone is usually a bank.
Banks' roles in money laundering have been the subject of several huge enforcement actions over the past few years. However, it is not clear that the banks have been able to respond in anything like an appropriate manner. As reported in the Financial Times, Deutsche Bank was found by the U.K.’s financial watchdog, the Financial Conduct Authority (FCA), to have “serious and systemic failings in its controls against money-laundering, terrorist financing, and sanctions breaking.” These conclusions were made based upon a “catalogue of shortcomings at the bank, ranging from missing documents and a lack of transaction monitoring to inappropriate pressure put on staff to take on certain clients.”
For the bank, this means that the FCA will conduct additional investigations called “skilled persons reports” that assess the remedial work Deutsche will be required to engage in going forward. But these reports are long and detailed and can lead to additional enforcement in the United Kingdom, so you can bet that UK regulators are looking into this conduct and will share their results with their U.S. counterparts, who will no doubt also investigate the conduct.
All of this is after Deutsche Bank paid out $2.5 billion in fines to UK and U.S. regulators for allegations that it manipulated the LIBOR benchmark rate. How bad could it get? The FT reported that the bank has reserved up to $4.5 billion to deal with its legal risk going forward.