Deutsche Bank ‘not sole mirror trader’

Bank ‘helped Russians move billions by buying shares in roubles, then selling them for euros, dollars’

Deutsche Bank AG was not the only international lender found to have conducted “mirror trades” to circumvent regulations and send money out of Russia in the last few years, the Bank of Russia said, declining to name other institutions involved.

The regulator said in a statement to Bloomberg that it had found about 750 billion roubles (Dh49.58 billion; $13.5 billion at average exchange rates over the period) in the transactions from 2014 to 2016, but didn’t break down the figure by individual banks. Deutsche Bank’s internal investigation found about $10 billion (Dh36.73 billion) in trades through its Moscow office from 2011-2015.

Though the new data suggest Deutsche Bank may have been the largest user of such transactions, the central bank’s statement that other foreign institutions were also involved highlights how pervasive illicit dealings are in Russia, where hundreds of billions of dollars have flowed out of the country in the last two decades.

‘Systemic’ failures

After an internal investigation into the mirror trades found “systemic” failures in its internal controls, Deutsche Bank agreed early this year to pay $630 million to the UK and New York State over lax antimoney laundering procedures. A Department of Justice investigation remains open.

A consent order between the bank and New York’s Department of Financial Services found serious compliance deficiencies that “allowed a corrupt group of bank traders and offshore entities to improperly and covertly transfer more than $10 billion out of Russia.”

The transactions, conducted through its Moscow office, allowed wealthy Russians to move billions out of Russia by buying blue-chip shares for roubles on the local market and simultaneously selling the same stocks for dollars or euros through Deutsche Bank’s London office. The beneficiaries of the scheme included some wealthy members of Vladimir Putin’s inner circle, Bloomberg reported in 2015. In 2011, business associates of one of those billionaires approached people at the Moscow office of Zurichbased UBS to do mirror trades for them, a person familiar with the situation said at the time.

The bank turned down the business, this person said. A spokesman for UBS Group AG declined to comment.

The Bank of Russia said Deutsche Bank’s role in the mirror trading became public as a result of its internal probe, which the lender also shared with the regulator. Deutsche Bank paid a fine of 300,000 roubles ($4,200) to the Bank of Russia for violations found in the investigation.

Now ‘minimised’

The regulator said that its efforts to crack down on the deals have “minimised” their use at present, with less than 800 million roubles in the trades detected in the first quarter of this year. That was down sharply from 600 billion roubles in 2014. By 2016, the flow had dropped to 17 billion roubles, the regulator said.

The Bank of Russia said it revoked the licences of “more than 100” local brokers involved in the mirror trading, but didn’t identify them. The regulator is continuing to monitor for the transactions, though other agencies are responsible for any criminal investigations that might arise. Mirror trades are legal under some circumstances, although the central bank said it was referring to those that bypassed regulations.

Mirror trades rank among the largest mechanisms for pumping money out of Russia identified by regulators, the Bank of Russia said.