‘Missed numerous opportunities’
The DFS alleged in its statement that Deutsche had “missed numerous opportunities to detect, investigate and stop the The alleged Russian mirror trading scheme scheme due to “extensive compliance failures”. As part of the settlement announced by Maria Vullo, the DFS superintendent, Deutsche has agreed to an independent monitor to review its anti-money-laundering programme.
The FCA found significant deficiencies throughout Deutsche Bank’s AML control framework. The FCA specifically found that, during the relevant period, Deutsche Bank’s Corporate Banking and Securities division (CB&S) in the UK:
- performed inadequate customer due diligence;
- failed to ensure that its front office took responsibility for the CB&S division’s Know Your Customer obligations;
- used flawed customer and country risk rating methodologies;
- had deficient AML policies and procedures;
- had an inadequate AML IT infrastructure;
- lacked automated AML systems for detecting suspicious trades; and
- failed to provide adequate oversight of trades booked in the UK by traders in non-UK jurisdictions.
As a result of these failings Deutsche Bank the front office of Deutsche Bank’s Russia-based subsidiary (DB Moscow) was allowed to execute more than 2,400 pairs of trades that mirrored each other (mirror trades) between April 2012 and October 2014.
The mirror trades were used by customers of Deutsche Bank and DB Moscow to transfer more than $6bn from Russia, through Deutsche Bank in the UK, to overseas bank accounts, including in Cyprus, Estonia, and Latvia. The orders for both sides of the mirror trades were received by DB Moscow, which executed both sides at the same time, the FCA said.
The customers on the Moscow and London sides of the mirror trades were connected to each other and the volume and value of the securities was the same on both sides. The purpose of the mirror trades was the conversion of Roubles into US Dollars and the covert transfer of those funds out of Russia, which, the FCA said is highly suggestive of financial crime.
A further $3.8bn in suspicious “one-sided trades” also occurred. The FCA believes that some, if not all, of an additional 3,400 trades formed one side of mirror trades and were often conducted by the same customers involved in the mirror trading.
The FCA emphasises the importance of having a strong AML control fra