Germany’s troubled Deutsche Bank faces fines, legal action and the possible prosecution of “senior management” because of its role in a $20bn Russian money-laundering scheme, a confidential internal report seen by the Guardian says.
The bank admits there is a high risk that regulators in the US and UK will take “significant disciplinary action” against it. Deutsche concedes that the scandal has hurt its “global brand” and is likely to cause “client attrition”, loss of investor confidence and a decline in its market value.
Deutsche Bank was embroiled in a vast money-laundering operation, dubbed the Global Laundromat. Russian criminals with links to the Kremlin, the old KGB and its main successor, the FSB, used the scheme between 2010 and 2014 to move money into the western financial system. The cash involved could total $80bn, detectives believe.
Shell companies typically based in the UK “loaned” money to each other. Companies then defaulted on this large fictitious debt. Corrupt judges in Moldova authenticated the debt – with billions transferred to Moldova and the Baltics via a bank in Latvia.
Deutsche Bank was used to launder the money via its corresponding banking network – effectively allowing illegal Russian payments to be funnelled to the US, the European Union, and Asia.
The bank was entirely unaware of the scam until the Guardian and Organised Crime and Corruption Reporting Project (OCCRP) broke the story in March 2017, the report says. The first it knew was an email from the Guardian and Germany’s Süddeutsche Zeitung newspaper asking for comment.
“Only with this intelligence received is it now possible for Deutsche Bank to start global investigations,” it notes.
In the embarrassing aftermath, the bank asked two in-house financial crime investigators – Philippe Vollot and Hinrich Völcker – to find out what had gone wrong. Their nine-page presentation was shared last year with the audit committee of the bank’s supervisory board and is marked “strictly confidential”.
The pair identified numerous “high-risk entities”. They included 1,244 in the US, 329 in the UK and 950 in Germany. These entities were responsible for nearly 700,000 transactions, the report says, involving at least £62m in the UK, $47m in the US, and €55m in Germany.
As part of its investigation, Deutsche Bank sent 149 “suspicious activity reports” to the National Crime Agency in London. Similar disclosures of potential money-laundering transactions were made to authorities in the US and elsewhere with 30 private and corporate Deutsche Bank clients reported. Some may have been “unknowingly used”, the report says.
The affair is a further blow to Deutsche Banks’s ailing reputation. It comes amid police raids on its Frankfurt HQ over the Panama Papers, a plunging share price and talks over a possible merger with Germany’s Commerzbank. The raid last November came after German prosecutors alleged two bank employees helped clients launder money via offshore firms.
Deutsche is also under scrutiny in Washington over its financial dealings with Donald Trump. On 15 April, Democrats from the House intelligence and financial services committees issued a subpoena, demanding the bank provide documents about its lending to the president.