Deutsche Bank today reached a $258 million settlement with the New York State Department of Financial Services and the Federal Reserve regarding transactions with countries and entities subject to U.S. sanctions, including Iran, Libya, Syria, Burma, and Sudan.
Deutsche Bank will pay includes $200 million to the New York State Department of Financial Services (NYDFS) and $58 million to the Federal Reserve. As part of the settlement, the bank also has agreed to install an independent monitor.
Additionally, while several of the employees who were centrally involved in this misconduct no longer work at the bank, Deutsche Bank will terminate an additional six employees involved in the scheme and ban three other employees from any duties involving the firm’s U.S. operations.
“From at least 1999 through 2006, Deutsche Bank used non-transparent methods and practices to conduct more than 27,200 U.S. dollar clearing transactions valued at over $10.86 billion on behalf of Iranian, Libyan, Syrian, Burmese, and Sudanese financial institutions and other entities subject to U.S. economic sanctions, including entities on the Specially Designated Nationals List of the U.S. Treasury Department’s Office of Foreign Assets Control,” the NYDFS said.
Bank employees recognized that U.S. sanctions rules would pose problems for U.S. dollar payments sent to or cleared through the United States. Nonetheless, employees “developed and employed several processes to handle dollar payments in non-transparent ways that circumvented the controls designed to detect potentially-problematic payments,” the NYDFS said.
For example, the bank engaged in wire stripping, removing specific details about the underlying parties or sanctioned countries involved to circumvent the U.S.-based sanctions controls. “Bank relationship managers and other employees worked with the Bank’s sanctioned customers in the process of concealing the details about their payments from U.S. correspondents,” the NYDFS said. “In addition, some evidence indicates that at least one member of the Bank’s Management Board was kept apprised about and approved of the Bank’s business dealings with customers subject to U.S. sanctions.”
Certain non-U.S. employees, especially those who managed relationships with a high number of Iranian, Libyan, or Syrian clients or who regularly processed U.S. dollar payments for sanctioned customers, were considered experts in the bank’s “OFAC-safe” handling procedures. They regularly educated colleagues in other branches or in other divisions outside the United States about handling U.S. dollar payments, the NYDFS said.
Moreover, the NYDFS said, the bank disseminated formal and informal written instructions emphasizing the need for utmost care to ensure that no sanctions-related information was included in U.S.-bound payment messages and setting out the various methods to use when processing sanctions-related payments. For example, Deutsche Bank staff told investigators that during the earlier part of the relevant time period, an internal customer database included notes for certain sanctioned customers indicating that their name must not be referenced in payment messages sent to the United States.
Later, bank payments processing employees prepared a training manual for newly hired payments staff in an overseas office, which included a section on how to handle payments with a sanctions connection.
In addition, Deutsche Bank New York staff occasionally raised objections to the Bank’s business relationship with U.S.-sanctioned parties based on U.S. law. European colleagues, however, did nothing to stop the practice but instead redoubled their efforts to hide the details from their American colleagues.
The NYDFS cited an example in which a relationship manager who did significant business with Iranian and Syrian customers complained to his boss that colleagues in the Middle East “participated in a major conference call with senior management of [Deutsche Bank New York] and provided an overview of DB’s account activities with Syria outside the U.S. Senior management of [Deutsche Bank New York] complained strongly to DB Frankfurt that they see this as a breach of law.”
“The relationship manager viewed this incident not as a prompt to re-examine the bank’s Syrian business, however, but rather as indicating a need to better train the non-U.S. staff who handle the ‘very lucrative’ Syrian and Iranian business to ensure such disclosures do not occur in the future,” the NYDFS said.