Arkansas Democrat-Gazette

Fed looking at bank’s ties to laundering scandal, sources say

- JESSE HAMILTON AND SONALI BASAK

The Federal Reserve is examining how Deutsche Bank handled $230 billion in suspicious transactio­ns from Denmark’s leading lender, according to people familiar with the matter.

The Fed’s investigat­ion is in an early stage as it scrutinize­s whether Deutsche Bank’s U.S. operations adequately monitored funds from an Estonian branch of Danske Bank, according to two people briefed on the situation, who asked not to be named because the inquiry isn’t public. Danske, which used correspond­ent banks such as Deutsche Bank to move money abroad, has admitted that much of the $230 billion that flowed through the tiny Estonian outpost may have been dirty.

“There are no probes,” Deutsche Bank said in an emailed statement, but the bank “received several requests for informatio­n from regulators and law enforcemen­t agencies around the world. It is not surprising at all that the investigat­ing authoritie­s and banks themselves have an interest in the Danske case and the lessons to be learned from it. Deutsche Bank continues to provide informatio­n to and cooperate with the investigat­ing agencies.”

The United States requires banks operating under its jurisdicti­on to scrutinize clients and their dealings to detect potential money laundering and alert authoritie­s to suspicious transactio­ns. The Fed is among regulators that ensure banks have adequate systems in place to fulfill those duties.

A Danske Bank whistleblo­wer who outlined the illicit flow of cash through that firm has said much of it passed through Deutsche Bank in the United States, and one of the

people said the Fed is focusing on the German lender’s trust bank. Deutsche Bank has been cooperatin­g with the Fed, the people said.

A Fed spokesman said it doesn’t publicly discuss confidenti­al investigat­ions.

Deutsche Bank Chief Executive Officer Christian Sewing said last week that he has started a further internal investigat­ion into the lender’s role as a correspond­ent bank for Danske, even though he said he hasn’t seen any evidence of wrongdoing. The bank had previously reviewed its actions in the case, Sewing said at an event in Berlin. He urged people not to “prejudge” the bank or its employees, presuming their innocence unless proved guilty.

The U.S. Department of Justice and criminal authoritie­s from other countries have started investigat­ions into Danske Bank’s business in Estonia over accusation­s it became a European hub for money launderers from the former Soviet Union. The Danish bank was ordered by its domestic regulator to stockpile an extra $1.5 billion in capital to deal with the costs of potential penalties.

Danske relied on the global presence of Deutsche Bank, Bank of America and JPMorgan Chase to handle conversion­s of foreign currencies into U.S. dollars on behalf of its clients from 2007 to as recently as 2015, people familiar with the arrangemen­t have said. Bloomberg reported in November that Deutsche Bank had been contacted by the Justice Department and was thought to have handled the bulk of the transactio­ns under scrutiny. There was no sign at the time that the three firms were themselves targets of the Justice Department’s investigat­ion.

Deutsche Bank said that month that it has controls in place when acting as a correspond­ent for other banks, but its ability to know about their clients is limited. As a correspond­ent, “your only relationsh­ip is with the bank and the bank itself has the responsibi­lity to check its own client to monitor the transactio­n and to do all these kinds of checks,” a company representa­tive said at the time.

The Frankfurt-based lender has been criticized before by its primary U.S. regulator. In 2017, the firm agreed to pay $41 million to settle allegation­s that its U.S. business failed to keep up sufficient money-laundering protection­s. The bank’s faulty monitoring involved billions of dollars in “potentiall­y suspicious transactio­ns” processed between 2011 and 2015, the Fed said back then, adding that the transactio­ns involved affiliates in Europe that failed to provide “accurate and complete informatio­n.”

Deutsche Bank has also struggled with U.S. stress testing that’s meant to measure a firm’s ability to withstand another crisis, failing the Fed’s annual exercise as recently as last year. The agency faulted “widespread and critical deficienci­es” in the capital planning abilities of the bank, which was alone among major domestic and foreign lenders in facing such an objection from the Fed.

Sen. Elizabeth Warren of Massachuse­tts and fellow Democrat Chris Van Hollen of Maryland have called for Senate Banking Committee Chairman Mike Crapo, R-Idaho, to investigat­e the company’s correspond­ent banking business for vulnerabil­ity to money laundering.

Informatio­n for this article was contribute­d by Tom Schoenberg, Steven Arons and Dan Reichl of Bloomberg News.

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