Deutsche Bank’s continued AML struggles worth questioning

The action comes after Deutsche Bank remarked in January that it has spent more than €1 billion (U.S. $1.2 billion) on compliance enhancements over the last several years. Further, the bank increased its anti-financial crime team to more than 1,600 employees globally.

This causes one to ponder: What is going on at Deutsche Bank? I believe there is a problem.

Where does the blame lie?

Given the resources applied by Deutsche Bank, one may question whether the issue is with the bank or elsewhere.

Among other things, BaFin criticized the bank’s compliance with due diligence obligations, particularly regarding customer reviews. Despite Deutsche Bank’s apparent attraction to money launderers, it’s safe to say the vast majority of its customers are not money launderers. Regulators need to do more to acknowledge this distinction.

It shouldn’t be about how much money an organization spends; rather, we should focus on how it is spent. Over $1 billion used to support a failed or inadequate program is indicative of mismanagement and misunderstanding.

It’s a problem of form over substance—ticking and filling boxes solely for the purpose of ticking and filling boxes. If the regulators at BaFin were asked to describe what a money launderer looks like, they might answer he/she could be anyone. This answer would be correct. But, if the same regulators were asked to describe what a money launderer’s bank account looked like, what would their answer be then?

Professionals reading this article should readily acknowledge criminal bank accounts are busy. In keeping with the three stages of money laundering, there are lots of credits, which reflect the proceeds of crime being paid into accounts or layering transactions that are subsequently debited and moved out of the account. Money laundering accounts seldom have a single or low number of credits.There is a lot of money to be laundered. The launderers are seeking weak points and opportunities. When they find them in the form of bank accounts, they use them extensively.

None of this is technical or hypothetical, as the evidence can be found in decades of cases. Our collective failure to effectively disrupt and defeat the money launderers means they have not found it necessary to adjust their models and methods.

I recently discussed this with former federal agent Bob Mazur, and he said there were approximately 20 widely known money laundering methods that have existed for a long time. No one is using these models as a basis for their AML programs. Instead, they fill boxes and answer to regulators who do not understand how money launderers operate.

Lessons to learn

The moral of this story may be one of executives and regulators with old attitudes and no understanding of how to fight financial crime. More pointedly, this case demonstrates the need for boards and executives to implement aspirational financial crime compliance programs. Businesses should go above and beyond; corner-cutting will be found out, and such conduct will undermine confidence in the sincerity of a program.

Times have changed and so have attitudes. Money laundering is now a standing item upon the agendas of board meetings at major banks. Executives need to understand the issues, risks, and costs associated with getting it wrong. Regulators could stand to up their game as well.

It shouldn’t be about how much money an organization spends; rather, we should focus on how it is spent. Over $1 billion used to support a failed or inadequate program is indicative of mismanagement and misunderstanding.

The answer to this ongoing problem cannot be the expenditure of another $1 billion and the recruitment of an additional 1,600 employees. It needs to be led by intelligence, perhaps in tandem with a change in culture, an adjustment of tolerance, and a clear message from executives that Deutsche Bank will be a hostile environment for all financial criminals.