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Federal Reserve Imposes $186 Million Fine on Deutsche Bank for AML Failures

In a significant development, the Federal Reserve announced on Wednesday that it has fined Deutsche Bank (DB) and its US affiliates a staggering $186 million for their failure to adequately address anti-money laundering (AML) shortcomings flagged by the regulator. The penalty comes as a result of the bank's insufficient progress in remedying long-standing compliance issues.

Federal Reserve Imposes $186 Million Fine on Deutsche Bank for AML Failures

Notably, the Federal Reserve has now demanded that Deutsche Bank's board take immediate action to allocate sufficient financial, staffing, and managerial resources to fully comply with the Office of Foreign Assets Control (OFAC) Order and AML Order by the end of this year. The severity of the demands underscores the gravity of the regulatory concerns surrounding the German banking giant.


The Federal Reserve's criticisms are scathing, as it revealed that Deutsche Bank had not adequately addressed issues identified as far back as its 2015 and 2017 consent orders. These deficiencies have continued, particularly concerning the bank's prior relationship with the Estonian branch of Danske Bank, which has been mired in a money laundering scandal.


The language used by the Federal Reserve is damning, characterizing the situation as a "material failure" by Deutsche Bank to correct "unsafe and unsound banking practices." It appears that the bank had made commitments to rectify these issues but failed to meet its obligations, resulting in the violations of its legally binding commitments.


Consequently, Deutsche Bank is still "exposed to heightened levels of compliance risk without sufficient internal controls," which could potentially lead to a failure to detect money laundering activities or violations of US sanctions.


In addition to the substantial fine, the Federal Reserve has imposed separate restrictions on Deutsche Bank, ordering it to address ongoing deficiencies in its risk and data management practices. The regulator has explicitly warned that the bank must prioritize these issues, or it may face "additional and escalated" penalties.

The imposition of the fine and the heightened regulatory scrutiny come at a time when the Biden administration has made it clear that it intends to crack down on repeat corporate offenders and clamp down on corruption and white-collar crime in the financial sector.


The roots of Deutsche Bank's current predicament can be traced back to the Danske money laundering scandal. In its order, the Federal Reserve highlighted a significant portion of the $276 billion in transactions that Deutsche Bank cleared for Danske Bank involved "high-risk non-resident customers." The bank's money laundering policies continued to be deficient even after its relationship with Danske Bank ended in 2015.


Despite some recent progress, the Federal Reserve has concluded that Deutsche Bank's US operations still face heightened compliance risks due to inadequate internal controls, particularly in certain business lines that pose higher sanctions and money laundering compliance risks.


In response to the fine, Deutsche Bank issued a statement recognizing the need to reinforce compliance controls. The bank attributed the compliance failures to "historic tardiness" in meeting previous commitments made to US regulatory authorities. Deutsche Bank emphasized its commitment to close its remediation obligations promptly.


Fortunately for the bank, the majority of the $186 million fine will be covered by provisions set aside in previous quarters, according to Deutsche Bank's statement.


The Federal Reserve has outlined specific remedial actions that Deutsche Bank must undertake. These include prioritizing the completion of milestones and tasks under action plans to improve systems and data supporting AML transaction monitoring and OFAC transaction filtering. Additionally, the bank must establish a satisfactory customer due diligence program and an effective framework for transaction monitoring, particularly for higher-risk business lines.


To ensure compliance, the boards of directors of Deutsche Bank, DB USA, and DWS USA have been directed by the Federal Reserve to take necessary steps to allocate adequate financial, staffing, and managerial resources. This allocation is essential to fully comply with the orders and meet key milestones by the end of 2023.


The Federal Reserve's orders are rooted in issues identified in 2015 and 2017 consent orders related to deficient controls in Deutsche Bank's dealings with Danske Bank's Estonian branch. The Danske Bank scandal allowed billions of dollars of illicit payments to flow into the US financial system, triggering long-lasting repercussions for Deutsche Bank.

By fLEXI tEAM



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