Financial transaction

Deutsche Bank abandoned risky clients after Epstein scandal


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Deutsche Bank severed ties with “a very small number” of high net worth clients with criminal records after disgraced financier Jeffrey Epstein was arrested.

When Germany’s largest bank accepted Epstein as a client in 2013, he was already a convicted sex offender. Deutsche agreed to pay $ 150 million last year for breaches of compliance, including its dealings with the fund manager, who died in prison two years ago.

Christian Sewing, chief executive, admitted last year that the decision to do business with Epstein was “a critical error.”

After Epstein’s arrest in 2019, Deutsche Bank conducted an internal analysis looking for “other cases of clients who were included in the past but should be viewed differently today,” said Stefan Simon, executive director of the lender, at the Financial Times.

As a result, he severed relationships with “a very small number” of clients, Simon said, adding that the legal issues were different from Epstein’s.

Simon, a former partner at law firm Flick Gocke Schaumburg and a member of the supervisory board of Deutsche Bank, joined the lender’s board of directors in 2019 as head of regulator.

This year he was also responsible for compliance and the fight against financial crime as part of a larger board reshuffle. He took over shortly after the bank was publicly berated by German financial watchdog BaFin for poor checks and vowed to make them “more efficient”.

Simon admitted that competitors started tightening their financial crime controls earlier than Deutsche. “We were lagging behind and catching up for some time now,” he told the FT.

The 52-year-old launched a fundamental overhaul of the bank’s compliance, centralizing the department at the lender’s headquarters in Frankfurt and replacing nearly half of the senior control functions.

Deutsche has earmarked an additional but undisclosed sum for the compliance overhaul. Spending is among the reasons the bank will miss its previous cost target for 2021, which was dropped this summer. Over the past two years, Deutsche has spent € 2 billion on its control functions and additional compliance staff.

Most of the extra money will be spent on strengthening Deutsche’s financial crime fighting capabilities, including its technology to spot money flows linked to terrorist financing and money laundering – an area in which BaFin and the US Federal Reserve called for improvements.

The bank is also streamlining its IT infrastructure and will soon begin replacing its outdated and fragmented surveillance systems with new software. “We will develop our own individual solution less but buy more off the shelf products,” said Simon, adding that this “would save us time and money”.

In addition to spending a lot on new software and more staff, Simon stressed that the mindset of bankers is key to avoiding legal and compliance risks. “First and foremost, the operating company is in charge and also responsible for the risks of financial crime – just as it is responsible for the financial risks associated with a customer or a transaction,” he said. .

“When in doubt, we have to say no to customers and transactions, even though they may be formal in the sense. It can be painful from a business standpoint, but we just need to do it – and we already do. “

He said Deutsche would punish bankers who fail to meet that expectation. “We’ve done this in the past,” said Simon, declining to discuss details.

The FT reported in June that the departure of two senior executives was linked to an ongoing investigation into allegations of mis-selling foreign exchange derivatives to corporate clients in Spain. Simon declined to comment on the probe, which is codenamed “Teal”.


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