Deutsche Bank and related entities agreed to pay $150 million in penalties in connection with its relationship with Jeffrey Epstein and its correspondent banking relationships with Danske Bank Estonia and FBME Bank.
The penalty was assessed by the New York State Department of Financial Services, which announced in a news release issued Tuesday that Deutsche Bank failed to properly monitor account activity conducted on behalf of the late registered sex offender, despite the availability of plentiful, publicly available information regarding Mr. Epstein's criminal misconduct.
The department contends that the bank processed hundreds of transactions totaling millions of dollars that should have prompted additional scrutiny considering Mr. Epstein's history, such as payments to Mr. Epstein's alleged co-conspirators; millions paid in settlement agreements and legal expenses; payments to Russian models, payments for women's school tuition, hotel and rent expenses; and suspicious large cash withdrawals over the course of four years.
Despite this suspicious activity, "very few problematic transactions were ever questioned, and even when they were, they were usually cleared without satisfactory explanation," the news release said.
The department also concluded that Deutsche Bank failed to properly monitor the activities of foreign bank clients Danske Estonia and FBME regarding their correspondent-banking business and dollar-clearing business.
Deutsche Bank was repeatedly informed that Danske Estonia suffered from inherent control failures resulting in large quantities of money being moved on behalf of Russian oligarchs. Despite these lack of controls, and despite Deutsche Bank assigning Danske Estonia its highest possible risk rating, Deutsche Bank failed to prevent Danske Estonia from transferring billions of dollars of suspicious transactions through Deutsche Bank accounts in New York.
Deutsche Bank's relationship with FBME similarly represented the bank's failure to act on red flags. Deutsche Bank considered FBME to be a high-risk client that required annual enhanced anti-money laundering checks. Despite these checks, there was little evidence that FBME improved the quality of its controls over several years.
Eventually, the U.S. Treasury Department's Financial Crimes Enforcement Network mandated that all banks operating in the U.S. to stop doing business with FBME. By that point, Deutsche Bank was the last major Western bank to have a correspondent banking relationship with FBME.
"Banks are the first line of defense with respect to preventing the facilitation of crime through the financial system, and it is fundamental that banks tailor the monitoring of their customers' activity based upon the types of risk that are posed by a particular customer," said Linda A. Lacewell, superintendent of financial services, in the news release. "In each of the cases that are being resolved today, Deutsche Bank failed to adequately monitor the activity of customers that the bank itself deemed to be high risk. In the case of Jeffrey Epstein in particular, despite knowing Mr. Epstein's terrible criminal history, the bank inexcusably failed to detect or prevent millions of dollars of suspicious transactions."
"While the settlement reflects our upmost cooperation and transparent engagement with our regulator, it also shows how important it is to continue investing in our controls and enhancing our anti-financial crime capabilities," a Deutsche Bank spokesman said in an emailed statement. "To that end, we have invested almost $1 billion in improving our training, controls and operational processes, and have increased our anti-financial crime team to more than 1,500 people."
The statement added that there "was no intentional effort by anyone within the bank to facilitate unlawful activity."
Deutsche Bank CEO Christian Sewing wrote in an internal communication to staff that the settlement "serves as a reminder of how vigilant we must remain."
"(W)e all have to help ensure that this kind of thing does not happen again," Mr. Sewing wrote. "It is our duty and our social responsibility to ensure that our banking services are used only for legitimate purposes. That's exactly why we should always examine things critically, ask questions and speak up."
Mr. Sewing added in the memo that taking Mr. Epstein "as a client in 2013 was a critical mistake and should never have happened."