Fed slaps a $186m fine on Deutsche Bank

Deutsche Bank, Germany’s largest lender, has once again been slapped with a hefty fine by the US Federal Reserve, amounting to $186 million. The penalty was imposed due to the bank’s failure to address “unsafe and unsound practices,” despite its pledge to do so as far back as 2015.

The Federal Reserve’s investigation revealed that Deutsche Bank had made inadequate progress since 2018 in tightening its anti-money laundering controls, enhancing customer due diligence, and ensuring compliance with sanctions, among other areas of concern. This is not the first time the bank has faced such penalties; it had already been fined $99 million in 2015 and 2017 for similar compliance lapses.

Part of the recent fine is linked to Deutsche Bank’s involvement in a money laundering scandal at Danske Bank Estonia.

While the US regulator acknowledged some recent progress, it expressed concern that Deutsche Bank’s US operations continue to be exposed to high levels of compliance risk, including the risk of failing to detect money laundering activities or violations of US sanctions. The Federal Reserve has directed the bank to make “substantial” improvements in these areas by the end of the year, warning of additional penalties if the issues persist.

This latest action underscores the fact that Deutsche Bank still has ground to cover in its efforts to move past a series of regulatory breaches that have plagued it, including the mis-selling of toxic mortgage securities, resulting in fines totaling over $10 billion since the 2008 financial crisis.

In response to its troubled past, Deutsche Bank has undertaken significant efforts to clean up its image and improve its financial standing. In 2019, the bank initiated a transformation program worth $8.3 billion, led by CEO Christian Sewing, aimed at reinventing the institution.

These turnaround efforts have begun to yield positive results, as evidenced by the bank reporting its highest quarterly profit since 2013 in the first quarter. Deutsche Bank asserts that it has made substantial investments in controls since 2019 and expanded its global anti-financial crime team by over 25%, comprising more than 2,000 employees.

The bank stated that the Federal Reserve’s actions reinforce the need to uphold their commitments, asserting that it is well-prepared to meet regulators’ expectations.

The Federal Reserve’s findings also revealed that a significant portion of the $267 billion in transactions cleared by Deutsche Bank for Danske Estonia involved high-risk customers, leading to Deutsche Bank ending its relationship with Danske in 2015.

In November, Germany’s financial watchdog, BaFin, had previously threatened Deutsche Bank with further fines if it failed to address issues related to money laundering and terrorist financing controls. These persistent compliance challenges indicate that Deutsche Bank still has work to do to ensure a stronger and more sustainable regulatory standing.

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