Deutsche Bank to pay $130M to settle bribery, ‘spoofing’ charges

The coordinated resolution between the Department of Justice (DOJ), Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC) will have Deutsche Bank pay approximately $80 million in penalties to the DOJ to settle violations of the Foreign Corrupt Practices Act (FCPA) and $43.3 million in disgorgement and prejudgment interest to the SEC, according to a press release Friday. In addition, the bank will pay $7.5 million to the CFTC to settle the commodities fraud charges, which is credited to a $30 million settlement reached in 2018 with the CFTC to settle the same conduct.

The details: Between 2009 and 2016, Deutsche Bank violated the FCPA by paying more than $7 million to business development consultants in China, the United Arab Emirates, and Saudi Arabia, according to the regulators. The DOJ and SEC stated the consultants were third-party intermediaries who passed the money on to decisionmakers in the form of bribes. Those decisionmakers then chose Deutsche Bank for several lucrative business deals.

In its order, the SEC said Deutsche Bank lacked proper internal accounting controls regarding the use and payment of these consultants, and that the payments were inaccurately recorded as legitimate business expenses using falsified invoices and documentation created by Deutsche Bank employees.

In the spoofing case, Deutsche Bank traders were found to have placed numerous precious metal orders on exchanges in New York, Singapore, and Hong Kong before canceling them just before execution. The conduct, which occurred between 2008 and 2013, was intended to manipulate prices for precious metals on those commodities markets. Three former Deutsche Bank traders were either found guilty or pled guilty to charges in federal court in connection with the case; charges are pending against a fourth trader, the DOJ said.

DPA terms: In a three-year deferred prosecution agreement (DPA) between the DOJ and Deutsche Bank, the bank “admits, accepts, and acknowledges that it is responsible under United States law for the acts of its officers, directors, employees, and agents as charged in the Information,” and that the charges levied by the DOJ are “true and accurate.”

The bank has already taken measures to significantly enhance its internal accounting controls and its anti-corruption and anti-bribery programs. The company will significantly reduce the number of business development consultants it uses, ensure all consultant contracts used must be reviewed at least once a year, and require all new consultants be vetted using enhanced due diligence and approved by a member of the company’s management team.

The DPA does not call for the appointment of a new independent compliance monitor; instead, it will be overseen by the independent monitor still in place in accordance with the 2015 settlement of the bank’s manipulation of the London Interbank Offered Rate (LIBOR).

Compliance lessons: According to the SEC, Deutsche Bank hired business consultants with little or no experience; who worked for the government entity with which Deutsche Bank was attempting to do business; and who were paid at rates that were “unreasonably high” for the work being performed. The contracts with the consultants often lacked the specificity required by the company’s procedures that would outline a consultant’s responsibilities.

In addition, Deutsche Bank did not conduct thorough enough due diligence on many of its business development consultants to determine their connections to a “politically exposed person” (PEP) who represented a government agency or was the spouse or close relative of a PEP. While Deutsche Bank had an established procedure for vetting such consultants, in practice that vetting fell to business sponsors, who were rewarded financially when they generated revenue for the bank. This financial interest encouraged the sponsors to ignore the bank’s policies and procedures, the SEC said.

Deutsche Bank identified the deficiencies in its processes as early as 2009, the SEC said, but failed to remediate them until 2016.

Key quote: “While third parties can assist in legitimate business development activities, it is critical that companies have sufficient internal accounting controls in place to prevent payments to third parties in furtherance of improper purposes,” said Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit, in a press release.