Deutsche Bank has been fined $186mn by the US Federal Reserve over what the US central bank called a “material failure” to fix “unsafe and unsound banking practices” that the bank had promised to sort out as long ago as 2015.
The action shows the continuing struggle for Christian Sewing, the German lender’s chief executive, in meeting his promise to end an era of control shortcomings.
In a consent order published on Wednesday, the Fed criticised persistent weaknesses in Deutsche Bank’s controls on sanctions compliance, transaction monitoring and its systems to check money-laundering. In 2015 and 2017, the US watchdog fined the German lender $99mn over the same issues.
At the time, Deutsche entered legally binding commitments to fix the problems, pledges that the Fed concluded were subsequently violated as the bank had “made insufficient progress in its remediation efforts”. As a consequence, Deutsche was still “exposed to heightened levels of compliance risk without sufficient internal controls, including the risk of failing to detect money laundering activity or US sanctions violations”.
Part of the fine was also linked to Deutsche’s role in the Danske Bank Estonia money-laundering scandal.
The latest Fed action confirms that regulators around the globe are concerned at the rate of improvement in Deutsche’s controls.
In November, Germany’s BaFin financial watchdog threatened to fine the lender if it missed crucial deadlines for fixing its money-laundering controls. That was the latest escalation of a four-year tussle between lender and regulator, which since 2018 has employed KPMG as a special monitor to oversee Deutsche’s controls on behalf of the German watchdog.
In 2022, the supervisory board capped the bonuses of Sewing and nine other members of the management board over the delays in improving internal controls, axing €1mn from total executive pay for 2022. Alexander Wynaendts, the bank’s new chair, told the FT in May that he insisted on making the bonus cuts public to “send a signal to the entire organisation” that executives are held accountable for the shortcomings.
Since the end of the financial crisis, Deutsche has paid more than €14bn in fines and settlements over a wide spectrum of misconduct allegations, ranging from the rigging of benchmark interest rates, the mis-selling of mortgages and derivatives, and flaws in its systems against money-laundering. The bank since 2018 has reshuffled responsibility for its control functions several times, most recently when Stefan Simon in 2021 was put in charge of compliance and preventing financial crime.
Deutsche said in a statement that the fines were for “historic tardiness” in meeting previous commitments given to US watchdogs. “We recognise that these actions reinforce the need to ensure we stand by our commitments and close our remediation obligations in the near future,” the bank said, adding that it had invested heavily in its controls since 2019.
The headcount in its global financial crime team had risen by a quarter to 2,000. “Given the momentum we have built in the last two years, we believe we are well positioned to meet our regulators’ expectations,” it said.
In its latest intervention, the Fed acknowledged “some progress” had been made “recently” but nonetheless imposed a strict deadline for Deutsche, declaring that the “substantial completion by year end 2023 of key milestones” was necessary.
The Fed warned that should Deutsche continue to fall short on its measures, it may impose “additional and escalated formal actions . . . including additional penalties or additional affirmative corrective actions”.
The bank said that the burden of the new fine was “in large part” covered by provisions and the remainder also included in its cost guidance. It will report second-quarter results on July 26.