Deutsche Bank Agrees to Settle the Russian Mirror Trade Probe

Deutsche BankGerman banking major Deutsche Bank AG has agreed to end investigations by US and UK regulators by paying a penalty amount of $630 million. The bank was under the suspicion for shifting $10 billion out of Russia in a time span of 4 years from 2011 to 2015.

US regulators will be paid a whopping amount of $425 million by Deutsche Bank and another $200 million would be paid as a penalty amount by Fınancial Conduct Authority or FCA which is a financial regulatory agency in Britain.

Under the mirror trading scheme, the clients of Deutsche bank bought Russian stocks in Moscow while another party sold the same stock at same quantity and price through its New York or London office in US Dollars. An investigation was carried out by New York Department of Financial Services (DFS) in which it was said that the bank had acted in an unsafe manner time and again which in turn resulted in the violation of banking regulations. Further, it has been said that the bank did not make any efforts to keep check of the controls for vetting clients and for the detection of suspicious trades.

Sky News

DFS in a press release made the following statement:

By converting rubles into dollars through security trades that had no discernible economic purpose, the scheme was a means for bad actors within a financial institution to achieve improper ends while evading compliance with applicable laws.

Between the period from 2012 and 2014, Deutsche Bank had made more than 2400 pairs of such tradings. This information was revealed by a report submitted by the UK Regulator. The report further made revelations of the clients of the bank who moved out tonnes of money from Russia to different banks across the globe like Estonia, Latvia and Cyprus. The scheme could have served the purpose of capital flight and tax evasion but the company was not able to justify the true purpose.

In the litigation reserves, $630 million settlement was already accounted for by Deutsche Bank. The fine would not resolve the issue of a separate probe in the Russian equity trades by the United States Justice Department. Both UK and US Regulators have confirmed that bank has been cooperating to a great extent throughout the process of investigation and it is making remarkable improvements in the money laundering controls. Last year, the bank had announced that disciplinary actions were executed against the employees who were involved in it.

For its financial misconduct, Deutsche Bank will make a payment of $7.2 billion to the Justice Department. The misconduct refers to the sale of mortgage-backed securities ahead of the financial crisis of 2008. The rising legal cost of the bank is a major concern among the investors and they are waiting eagerly for the 4th quarter results that are likely to be released in the coming week.


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